What is an ABLE Plan?

The Achieving a Better Life Experience Act (ABLE) allows individuals with disabilities and their families to save for a wide range of expenses. These accounts are similar to 529 college savings plans in that earnings grow tax-free, and withdrawals can be used for qualified disability expenses without impacting federal means-tested benefits like SSI, Medicaid, and private insurance coverage. In addition, New York State residents who open an ABLE account will receive a state income tax deduction of up to $25,000 per year.

The accounts are available for individuals who meet Social Security’s definition of disability and have an onset date of disability before age 26. Accounts may be established by any “person,” which includes individuals, trusts, estates of decedents, partnerships, associations, and companies. The annual contribution limits to an ABLE account are set by each state program and range from $14,000 per year to total lifetime contributions of no more than $450,000. These maximum amounts are tied to each state provider’s limit on contributions to its 529 college savings plans.

Funds in ABLE accounts can be used to pay for eligible expenses that enhance quality of life, promote independence and enable employment. These include, but are not limited to, education, housing, transportation, employment training and support, assistive technology, personal care, health and wellness, financial management and administrative services, legal fees, and funeral and burial expenses. There are proposed bills in Congress to expand the eligibility for ABLE accounts to include individuals who have disabilities with an onset date prior to age 46.

Who is Eligible for ABLE Plans?

In order to qualify for an ABLE account, the disabled individual must self-certify that their disability meets Social Security’s definition of disability and provide a physician’s diagnosis to be eligible for the program. Currently, the eligibility cap is tied to an individual’s age of onset of disability before age 26. However, advocates are working to raise the eligibility cap to allow for more individuals to benefit from these accounts.

The person with a disability who is the designated beneficiary of an ABLE account may open the account on their own or with the help of a parent, guardian, conservator, or agent under power of attorney. Most ABLE plans offer a debit card or prepaid card so that funds can be used to purchase qualified expenses. Almost all ABLE plans charge asset- and dollar-based fees that vary across the country, so comparing the fees charged by different states before selecting an option is important.

Additionally, some states offer special waivers or incentives that may be unique to their ABLE program and are not available through other national ABLE providers. When choosing an ABLE program, these should also be compared carefully to other relevant factors.

What Happens After an ABLE Account is Established?

Once an ABLE account is established, the income earned by the funds in the account are tax-free as long as they are used for approved qualified disability expenses (QDEs). QDEs include basic living needs such as food and shelter; medical, dental, and vision care; employment training and support; transportation; home modifications; assistive technology; personal support services; financial management and administrative services; and funeral costs.

While an ABLE account provides many benefits, it is important to remember that the assets in the account are not protected from bankruptcy or creditors and can be withdrawn at any time for any reason. It is also possible that the ABLE account could impact eligibility for means-tested government programs such as SSI and Medicaid.

Individuals who wish to establish an ABLE account should review the options offered by each state program and consider the investment strategies available. A financial advisor can help individuals compare and choose the right ABLE program for their unique circumstances.