What Is an ABLE (Achieving a Better Life Expectancy) Account?

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, but the total annual contribution cannot exceed a certain limit, which is pegged to the gift tax exemption. In 2020, this limit is $15,000. 

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.

Key Takeaways

  • ABLE accounts are tax-advantaged savings accounts for people who developed significant disabilities before their 26th birthday.
  • ABLE accounts are similar to 529 education accounts, and they are administered state-by-state, not by the U.S. federal government.
  • By saving money in an ABLE account, individuals are able to maintain eligibility for government programs like SSI and Medicaid.

How ABLE Accounts Work

ABLE accounts were created by the 2014 Achieving a Better Life Experience (ABLE) Act, as a way of helping disabled individuals maintain public benefits such as Supplemental Security Income (SSI) and Medicaid, which require that beneficiaries have savings and other assets below certain levels to remain eligible. Funds in an ABLE account do not, for the most part, count towards an individual's eligibility for these programs. 

ABLE accounts function similarly to 529 plan accounts. The funds in ABLE accounts are invested and grow tax-free as long as distributions are for qualified disability expenses, which include education; housing; transportation; employment training and support; assistive technology and related services; personal support services; health, financial management and administrative services; legal fees; expenses for ABLE account oversight and monitoring; funerals and burials; and basic living expenses.

As with 529s, ABLE programs are established by individual states. Only 43 states have ABLE programs, but if a state accepts outside residents into its program you can open an ABLE account there, regardless of where you live. 

When the beneficiary of an ABLE account dies, the state in which the person lived can file a claim to some or all of any funds remaining in the account to recoup Medicaid costs.

ABLE Accounts vs. Trusts

Prior to the ABLE Act, many families had to use special needs trusts to leave assets to family members with disabilities without causing them to become ineligible for government services. However, creating a trust often requires legal assistance, which can get expensive.

A trust does have one main advantage: There is no upper limit to the contributions that can be made to it. An ABLE account, by contrast, has a state limit per plan. Many states set this limit above $300,000, with only the first $100,000 exempt from impacting eligibility for supplemental security income (SSI).

For many families, an ABLE account is an additional tool they can use to help secure a disabled child's financial future, rather than a replacement for special needs trusts.