An ABLE account is a tax-advantaged savings account available to individuals diagnosed with significant disabilities before age 26. Contributions can be made to the account by the beneficiary, friends, or family members. The funds in the account, if invested, grow tax-free.
ABLE programs are run by individual states. This means there are differences between ABLE accounts in different states. Four states—Idaho, North Dakota, South Dakota, and Wisconsin—don't have active ABLE programs. Many states accept outside residents into their program, so you can open an ABLE account there regardless of where you live. Some states only allow their own residents to participate in their ABLE account program.
In the years since ABLE accounts were signed into law, adoption has grown. As of the last quarter of 2021, there were 112,131 ABLE accounts with about $1 billion in assets, according to ISS Market Intelligence, a mutual fund analysis company. In the same period a year earlier, some 82,000 accounts held $643 million.
In this article, we’ll summarize ABLE programs by state, so you can find the account that’s right for you.
- An ABLE account is a tax-advantaged savings and investment account available to individuals with significant disabilities. You don’t have to pay taxes on the money in these accounts.
- ABLE programs are established by individual states, and there are differences between ABLE accounts in different states.
- Some states don’t have ABLE accounts, and some only allow residents to sign up for them. Some states allow anyone to hold an account, no matter where you live.
- There are a number of factors that you should consider when choosing an ABLE account, including account fees and contribution limits.
How ABLE Accounts Work
ABLE accounts were created by the 2014 Achieving a Better Life Experience (ABLE) Act. Public benefits such as Supplemental Security Income (SSI) and Medicaid have limits on how much money (and other assets) you can have and still be eligible. The ABLE program was designed to allow disabled people to save money without losing eligibility for these benefits. Funds in an ABLE account do not, for the most part, count toward an individual's eligibility for these programs. Before ABLE accounts, individuals receiving SSI could not have more than $2,000 in countable assets ($3,000 for a couple) without jeopardizing their SSI benefit.
Here’s how it works. A disabled person (or their friends or family members) can invest money in an ABLE account. The contributions themselves are not intended to be tax deductible, although some states may allow deductions against state income taxes. However, the funds within the account grow tax-free. An eligible individual may have only one ABLE account. Contributions to the account can be invested or held in cash. Cash funds deposited in an ABLE account through an FDIC-insured institution are covered by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000.
You can use the money in the ABLE account and won’t have to pay any taxes for this provided that you spend this on qualified disability expenses. These include:
- Employment training and support
- Assistive technology and related services
- Personal support services
- Prevention and wellness
- Financial management and administrative services
- Legal fees
- Expenses for ABLE account oversight and monitoring
- Funerals and burials
- Basic living expenses
When the beneficiary of an ABLE account dies, the state in which the person lived may file a claim to some or all of any funds remaining in the account to recoup Medicaid costs. Not all states have this Medicaid payback provision, and different states handle this in different ways. You can check the situation for your state or ABLE account.
How Much You Can Contribute Each Year
There is a limit to how much people can contribute: $16,000 a year for 2022. Individuals who work can contribute above that annual limit thanks to the Tax Cuts and Jobs Act of 2017. The ABLE to Work Act allows an ABLE account beneficiary who does not participate in an employer-sponsored retirement plan to contribute, on top of the $16,000, up to the lesser amount of either the prior year's federal poverty limit ($12,880 in 2021) or the account owner's compensation for the year.
Differences by State
Because ABLE programs are established by individual states, there are differences between the ABLE accounts available in each state.
Four states—Idaho, North Dakota, South Dakota, and Wisconsin—don't have active ABLE programs. If you live in those states, you should sign up with a state program that accepts outside residents. Some states only allow residents to have ABLE accounts. Different states also have different limits on how much you can keep in your ABLE account and charge different levels of fees for using them. Many states (but not all) have a debit card to access funds in the account.
There are some similarities, however. The contribution limit is set federally and is the same for every ABLE account. And the things you can use your ABLE account for are the same across the country.
If the beneficiary earns income, they can contribute that income to their ABLE account above the $16,000 limit.
Choosing an ABLE Account
There are a number of factors to consider when choosing an ABLE account, and plenty of resources that can help you make the decision. You can check the details of each state’s ABLE program on the ABLE National Resource Center website.
The ABLE National Resource Center recommends that you look for a plan in your home state first because it may offer a state income tax deduction or credit for contributions. The Medicaid payback provision may also be waived for residents who select their home state's ABLE plan. Though most plans are opened online, in a few cases, there may be a physical location where you can open an ABLE account and conduct business.
You should therefore start by looking at your own state’s ABLE program. If your state doesn’t have a program, then you can get a program from an out-of-state provider. In that case, the most important factors to consider are:
- Whether the program offers enrollment to out-of-state residents. If it doesn’t, you’ll need to live in the state in order to qualify for the program.
- Whether there is a state income tax deduction or credit for contributions made to accounts opened in this state by state residents. And if so, how much.
- Whether the account is FDIC insured: This means that your cash savings are safe.
- Whether there is a set fee to maintain the account, and how much this is.
- Whether you can roll your ABLE account over to another ABLE program. This keeps your options open should a better deal come up.
- If the program offers a debit or purchasing card. This can make using the account much more convenient.
- The maximum amount you can hold in the account. State ABLE limits range from $235,000 to $550,000. Only the first $100,000 is exempt from impacting eligibility for Supplemental Security Income (SSI).
There is a useful comparison tool that allows you to compare state programs and find one that is right for you.
Are ABLE Accounts Available in All States?
No. A handful of states, including Idaho, North Dakota, and South Dakota, do not have their own ABLE program. However, no matter where you live, you can open an ABLE account in any state that accepts outside residents into their program.
How Many ABLE Programs Are There?
As of February 2022, there are 49 ABLE plans nationwide inviting eligible individuals to open an ABLE account, most of which were enrolling individuals regardless of their state of residence.
Do Banks Offer ABLE Accounts?
Many states’ ABLE programs are offered through banks. This means that your money is secure and that many programs offer debit cards that you can use to spend your ABLE funds.
The Bottom Line
The options available to you when it comes to ABLE accounts vary by state. Just four states (Idaho, North Dakota, South Dakota, and Wisconsin) don't have active ABLE programs. If you live in those states, you can sign up with a state program that accepts outside residents. Some states only allow residents to have ABLE accounts.
Different states also have different limits on how much you can keep in your ABLE account and charge different levels of fees for using them. You should shop around to find the account that is best for you.