Welcome Back Everyone!
For parents and caregivers of individuals with disabilities, financial planning is often a complex maze.
Zeke and I know because we live it every day…. just like you! 😊
Balancing daily care needs with long-term financial security while navigating strict government benefit rules can feel overwhelming.
One of the most powerful tools created to simplify this journey and empower individuals with disabilities or special needs is the Achieving a Better Life Experience (ABLE) account.
In this ultimate beginner’s guide, we will demystify ABLE accounts and explore what they are, how they are used, how to set them up, and even what happens to the funds over time.
Our goal is to provide you with the knowledge to make informed decisions, secure your loved one’s future, and ensure they can live a life of dignity and independence without jeopardizing essential benefits.
Here is quick video preview of this week’s article:
Disclaimer: All information provided in this article is strictly for educational purposes and is in no way deemed to be financial, tax, or legal advice. Please always consult with a qualified tax professional or attorney before making financial decisions, as laws and regulations can change. External links are provided for convenience and informational purposes only; they do not constitute endorsement or approval by Special Need Finances of any of the products, services or opinions of the corporation or organization or individual. Special Need Finances bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links.
What is an ABLE Account?
An Achieving a Better Life Experience (ABLE) account is a tax-advantaged savings and investment account designed specifically for eligible individuals with disabilities.
Signed into law in 2014 as the ABLE Act, it was a landmark piece of legislation, recognizing the unique financial challenges faced by the disability community.
Before ABLE accounts, individuals with disabilities often had to choose between saving money for their future and maintaining eligibility for crucial means-tested government benefits like Supplemental Security Income (SSI) and Medicaid.
Traditional savings and investment accounts could push those individuals over the (very low) Medicaid and SSI asset limits.
This could inadvertently force families to choose between owning assets, forgoing benefits, or relying solely on government aid without being able to have almost any outside resources of their own.
The ABLE Act changed this by allowing eligible individuals to save money in a specialized account that they themselves own, and without losing these vital benefits.
ABLE accounts combine the benefits of a 529 college savings plan (e.g. tax-free growth and withdrawals for qualified expenses) with the flexibility needed to pay for a wide range of disability-related costs.
It has since become a gamechanger, providing financial autonomy and peace of mind for thousands of ABLE account holders across the United States.
What is an ABLE Account Used For?
The primary purpose of an ABLE account is to allow individuals with disabilities to save and pay for Qualified Disability Expenses (QDEs) in a tax-advantaged way that does NOT impact that individual’s eligibility for means-tested government benefits.
Any funds deposited or invested in an ABLE account will grow tax-free, and any withdrawals used to pay for QDEs are also tax-free.
Qualified Disability Expenses is a category that aims to cover expenses that can improve the health, independence, or quality of life of an individual with a disability.
And the SHEER beauty of ABLE accounts lies in the broad definition of QDEs.
The IRS provides guidance on what constitutes a QDE, and common QDEs include education, housing, transportation, housing, employment training, and much more!
Don’t worry — we will go into detail about QDEs in our next article… stay tuned! 😊
For now, the most important thing to know is that the flexibility of these categories means that an ABLE account can truly support a diverse range of needs, from daily living to long-term goals.
This makes the ABLE account a powerful tool for building a secure financial future without compromising essential benefits.
How To Properly Use An ABLE Account
Properly utilizing an ABLE account involves understanding its rules regarding set up, contributions, withdrawals, and maintaining eligibility for government benefits.
This ensures you maximize its benefits while avoiding potential pitfalls.
How to Set Up an ABLE Account
Setting up an ABLE account is a straightforward process, but it requires a few key steps.
Confirming eligibility, choosing the right plan, and completing the application accurately are crucial for a smooth start.
Eligibility for an ABLE Account
To open an ABLE account, an individual must meet two key criteria:
- Onset of Disability: The individual’s disability must have occurred before their 46th birthday. (Before 2026 the onset of the disability had to occur before age 26)
- Severity of Disability: The individual must be receiving either Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) or be certified by a licensed physician as having a severe disability that meets SSI criteria.
- The diagnosis should state that the individual has a severe physical or mental impairment that has lasted or is expected to last for a continuous period of at least 12 months, and which results in marked & severe functional limitations.
- In most cases, having a diagnosis of a developmental disability (e.g. such as autism) is usually considered sufficient for eligibility to open an ABLE account.
If an individual meets these criteria, then they can open an ABLE account.
It is important to note that in an ABLE account, the individual with the disability is both the account owner AND the designated beneficiary.
While a parent, legal guardian, or other Authorized Individual can open the account and manage it for a minor or an incapacitated beneficiary, the beneficiary retains legal ownership of the funds.
This is the one and only type of account that such an individual can own in their own name without risking the loss of those valuable benefits we mentioned before.
Unlike a 529 college savings plan, an individual can ONLY have one ABLE account at a time.
Choosing an ABLE Plan
While you must be eligible through your state of residence, generally, you are not restricted to opening an ABLE account in your home state.
You can choose any state’s ABLE program that accepts out-of-state residents!
- Research State Plans: Visit the ABLE National Resource Center website (ablenrc.org) to compare plans. Consider factors like:
- Fees: Annual maintenance fees, investment management fees.
- Investment Options: A range of options from conservative to aggressive, or target-date funds.
- Minimum Contributions: Initial deposit and subsequent contribution minimums.
- Online Accessibility: Ease of managing the account online.
- Customer Service: Availability and quality of support.
- Consider Your Needs:
- If you prefer a hands-off approach, look for plans with simple, diversified investment options.
- If you want more control, seek plans with broader choices.
- There is even an option that can be overseen and managed by a financial advisor if you would prefer that level of support. (https://www.capitalgroup.com/individual/investments/able.html)
Completing The Application
Once you’ve selected a plan, you can typically apply online. You will need:
- Account Owner and Beneficiary Information: Name, date of birth, Social Security Number (SSN), address, and contact information.
- Other Authorized Individual Information: This can be a parent or legal guardian if the account owner is a minor or has been deemed legally incapacitated.
- Disability Verification: If you do not receive SSI/SSDI, you may be asked to upload or mail the physician’s certification.
- Funding Information: Bank account details for initial and recurring contributions.
The application usually takes less than 30 minutes.
Once approved, you can start contributing to the account and watch the funds grow, knowing they are protected for your loved one’s future.
Contribution Rules
- Annual Contribution Limit: Contributions from ALL sources (e.g. the beneficiary, family, friends, etc.) are capped annually. This limit is tied to the federal gift tax exclusion which is $20,000 for 2026.
- ABLE to Work Program: Beneficiaries who are employed and do not have contributions made on their behalf by their employer to a defined contribution plan (like a 401k or 403b) can contribute an additional amount up to the federal poverty line for a one-person household (approximately $15,650 in 2026). This allows working individuals to save even more!
- Who Can Contribute: Anyone can contribute to an ABLE account This makes it an excellent tool for family and friends who wish to support a loved one with a disability without impacting their benefits.
Withdrawals From An ABLE Account
Withdrawals from an ABLE account can be made anytime for Qualified Disability Expenses (QDE) via online bank transfers to linked bank accounts, checks written out of the ABLE account, or a linked prepaid debit card.
Common Ways to Withdraw Funds:
- Online Transfer: Most ABLE accounts allow you to log in to your account portal to transfer funds electronically to a linked bank account.
- Prepaid Card: Some plans offer the option to move a portion of the funds in an ABLE account into a prepaid card for instant, direct access to the money. This can make it very easy for common daily activities like shopping, buying food, paying for transportation, and more.
- Check Request: You can request the ABLE account to mail a paper check to the account holder or a third party.
- Checking Account Option: If you have opted into a checking feature, you can use a debit card or write checks directly.
Important Considerations:
- Processing Time: Electronic transfers typically take 2-3 business days, while checks can take up to 10 business days.
- Qualified Expenses: Funds should be used for expenses related to the disability the person has (e.g., housing, transportation, education, healthcare) to remain tax-free.
- Record Keeping: You do not need to submit receipts for withdrawals, but you should keep records in case of an IRS or Social Security audit.
- Non-Qualified Withdrawals: If funds are used for non-qualified expenses, the earnings portion is subject to taxes and a 10% penalty.
- Fees: Some plans charge fees for check requests (e.g., $2.50) or have limits on free electronic transfers.
Asset Limits and Government Benefits
- Lifetime Asset Limit: Maximum account balances range from $235,000 to over $500,000 depending on the state program.
- NOTE: It is still possible for the value of an ABLE account to exceed those limits due to growth of the investments in the account, but once you hit that limit you will not be able to make any additional contributions.
- Medicaid Eligibility: Funds in an ABLE account do not count towards Medicaid asset limits and is a significant advantage.
- SSI Asset Limit: While ABLE account balances can exceed $100,000, only the first $100,000 in an ABLE account is generally excluded when determining eligibility for SSI.
If an ABLE account balance exceeds $100,000 any amount over that limit is counted as an asset, and the beneficiary’s SSI cash benefits may be reduced or suspended until the balance falls below $100,000.
However, Medicaid eligibility is not affected, regardless of the account balance.
NOTE:
No matter how much is in an ABLE account, it will NOT affect an individual’s eligibility for:
- Social Security Disability Insurance (SSDI)
- Housing Assistance – Housing and Urban Development programs (HUD)
- Supplemental Nutrition and Assistance Program (SNAP)
- Free Application for Federal Student Aid (FAFSA)
- Medicare Parts A, B, C, or D, Medicare Savings Programs, and Extra Help
- Any type of Medicaid benefit including Medicaid waiver services.
What Happens to Unclaimed Money in an ABLE Account?
One of the most common concerns about ABLE accounts is what happens to the funds if they are not fully used during the beneficiary’s lifetime.
Understanding the rules around “unclaimed” money is crucial for comprehensive financial planning.
Upon the death of the beneficiary, the state in which they lived may file a claim to all or a portion of the funds in the account equal to the amount in which the state spent on the beneficiary through their state Medicaid program.
This is called the Medicaid Payback Provision, and it is often the most significant consideration that many families have when trying to decide if they should open an ABLE account.
Medicaid Payback Provision
Upon the death of the beneficiary, any funds remaining in the ABLE account, after payment of outstanding QDEs and administrative expenses, may be subject to a Medicaid payback provision.
- How it Works: The state’s Medicaid program, which paid for services for the beneficiary, can file a claim against the remaining ABLE funds to recoup the costs of care provided after the ABLE account was established.
- State-Specific Rules: The extent of this payback can vary by state. Some states may only claim funds up to the amount of Medicaid benefits provided, while others may have different limitations.
- Planning Implications: This provision means that while ABLE accounts are excellent for current and near-term savings, they are generally not ideal for leaving a large inheritance, especially if the beneficiary received substantial Medicaid services.
Changing Owners and Beneficiaries
If the original ABLE account owner and beneficiary passes away AND there are remaining funds, the account can sometimes be rolled over to another eligible family member with a disability.
- Eligibility: The new successor owner and beneficiary must also meet the ABLE eligibility criteria (disability onset before age 46) and be a sibling, stepsibling, or half-sibling of the deceased beneficiary.
- Process: The process of changing owners and beneficiaries typically involves contacting the ABLE plan administrator and providing documentation for the new individual to be named. This option can help avoid the Medicaid payback if another eligible family member can benefit from the funds.
Rollovers to Other ABLE Accounts
While not directly related to “unclaimed” money at death, it’s important to note that funds can be rolled over from one ABLE account to another for the same beneficiary (e.g., if you switch state plans) or to an eligible family member’s ABLE account.
This offers flexibility in managing the funds over time.
Here is a great 1-page summary I found that highlights common ABLE questions people ask.
Conclusion: Empowering Financial Independence Using ABLE Account
The ABLE account stands as not only a beacon of hope but also practical support for individuals with disabilities or special needs.
It offers a pathway to save, invest, and spend money on essential needs and life-enhancing activities without the constant fear of losing crucial government benefits.
By understanding what an ABLE account is, how it’s used, and even what happens to the funds over time, you can unlock a new level of financial empowerment.
This tool is not just about money either.
It’s just as important for fostering independence, dignity, and a better quality of life for individuals with disabilities or special needs.
Zeke and I are committed to providing you with the resources and knowledge to navigate these complex decisions.
Take the first step today to explore an ABLE account and secure a brighter financial future for your loved one.
Ready to start planning? Visit the ABLE National Resource Center to compare plans
OR
if you need more specialized 1 on 1 support…
I highly recommend consulting with a financial advisor who specializes in special needs planning to explore your options… Like Zeke! 😊
Schedule a call with my friend Zeke Zimmerman here!
Live The Life You Love, Want, And Deserve! 😊