ABLE Accounts: A Financial Game-Changer for Individuals with Disabilities
From the loss of income to medical bills to necessary equipment and living aids, living with a disability can be expensive. Many disabled individuals worry about saving money for fear they’ll jeopardize their benefits — and justifiably so. That’s because the government has stipulations that set a maximum savings amount of $2,000 in a regular savings account.
If you or a loved one has a disability, then you know $2,000 doesn’t even begin to cover all of the needs and expenses that can arise.
Fortunately, there’s a way for disabled individuals to save money without the fear of impacting their eligibility for vital government benefits programs like Supplemental Security Income (SSI) and SNAP. The ABLE account, which stands for Achieving a Better Life Experience, is a special savings or checking account designed specifically for people with disabilities.
Haven’t heard of this account before?
Unfortunately, you’re not alone. Read on to learn the benefits, qualifications, and guidelines of this much-needed, beneficial financial plan.
What Is an ABLE Account?
An ABLE account is a savings or checking account with tax advantages that allows individuals with disabilities and their families to save money to cover the costs of disability-related expenses. It’s also referred to as a 529A savings plan.
Not all states offer these accounts, and the plans and guidelines vary from state to state. The good news is you can open an account from any state you choose — you aren’t limited to the state where you live. Most ABLE account plans charge annual fees, so be sure to review the fine print before opening.
So, what makes ABLE accounts different than a standard savings or checking account?
They offer many benefits and advantages beyond being a convenient way to save money for disability-related expenses:
- The maximum balance is $100,000. Yes — six digits instead of four. That gives ample breathing room to save and cover necessary living expenses.
- Deposits and withdrawals aren’t considered as income when calculating eligibility for SSI or Medicaid, so they won’t impact the amount of benefits you receive or your eligibility for these programs.
- Contributions grow tax-free and, if used for qualified disability expenses, can be withdrawn tax-free.
- Family members and friends can contribute up to $18,000 (2024) per year without being subject to gift taxes. This amount is subject to change each year.
- If the disabled individual also works, they can make additional contributions greater than the general annual limit.
What Are the Qualified Expenses You Can Use ABLE Account Funds For?
While you can use the money in your basic bank account for any purpose, the funds in an ABLE account must be used to pay for qualified disability expenses such as:
- Education
- Housing
- Transportation
- Employment training
- Assistive technology
- Specialized equipment
- Home modifications
- Health
It’s recommended to keep your receipts for what you used your ABLE account funds for in the event the IRS wants to take a peek at your financial activity.
Eligibility Requirements
Unlike a standard bank account, in order to open an ABLE account, you must meet certain requirements:
- You must have become disabled and diagnosed before your 26th birthday.
- Your disability must meet the Social Security Administration’s criteria.
- You have a doctor’s note diagnosing you with a qualifying disability.
If you meet the diagnosis and age, plus already receive SSI or SSDI, you automatically qualify for an ABLE account.
Recent advocacy actions spurred the passing of the Age Adjustment Act, which changes the eligibility age to 46 instead of 26, allowing millions more individuals to qualify for this beneficial financial plan. The age change will go into effect in 2026.
ABLE Accounts Are a Must-Have for Disabled Individuals
ABLE accounts are an invaluable financial instrument designed to help individuals with disabilities save money while maintaining eligibility for government benefit programs. The funds can be used tax-free for essential disability-related expenses. If you think you may qualify, take a moment to review the available plans online to get started. You really can’t afford to not take advantage of this plan that gives you the financial flexibility you need for your unique needs.
FAQs
How does an ABLE account affect SSI?
The balance in your ABLE account won’t count against your qualifying for benefits — as long as it’s under $100,000. However, if the combined balance of your ABLE account and other deposit accounts exceeds $100,000, your SSI benefits will be suspended until your total asset balances fall below the threshold. An important note: Medicaid benefits won’t be suspended if the limit is exceeded.
Can SSI money be direct deposited into an ABLE account?
Yes, SSI and SSDI can be direct deposited into your ABLE account. However, if you have a representative payee designation on your ABLE account, then direct deposit is not permitted.
How much money can I keep in an ABLE account?
The maximum amount you can keep in an ABLE account varies by state, but it generally falls under the federal threshold of $100,000.
Is the money in my ABLE account taxable?
The news keeps getting better! No, the money in your ABLE account is not taxable. Your contributions are made with after-tax dollars, the earnings on the account grow tax-free, and any withdrawals for qualified disability expenses are tax-free as well.
What is the maximum dollar amount I can contribute each year to my ABLE account?
As of 2024, the maximum contribution is $18,000. The amount can change each year, so it’s essential to confirm the limit before making any deposits. If you contribute more than the annual limit, the excess amount may be subject to penalties and taxes.
What happens if I use the money in my ABLE account for non-qualified expenses?
If you withdraw funds for non-qualified expenses, you’ll face a penalty equal to 10% of the amount withdrawn, as well as income taxes on any earnings associated with the withdrawn funds.
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