ABLE Accounts

An Achieving a Better Life Experience, ABLE account for short, is a type of savings account that allows people with disabilities to save for qualified disability expenses without losing eligibility for certain public benefits programs, like SSI and Medicaid. ABLE accounts are state-based and are similar to 529 college savings plans, but earnings in an ABLE account are tax-free if used for qualified disability expenses.

ABLE accounts allow individuals to save more than their SSI income limits, so they can better afford the costs of living with a disability. The first $100,000 in an ABLE account is not counted toward SSI’s resource limit. The funds are free of federal taxation as long as they are spent on qualified disability expenses.

The IRS monitors ABLE accounts to make sure that funds are being used for qualified disability expenses. This means that the account owner must show proof that they are using the money for those purposes.

What is A Qualified Disability Expense?

A qualified disability expense (QDE) is a term used by the IRS to describe certain expenses that can be paid for using funds from a tax-advantaged account, such as an Achieving a Better Life Experience (ABLE) account or a 529A ABLE account.

A QDE is an expense that is related to the disability or blindness of the account owner or a designated beneficiary and that helps improve their quality of life. Examples of qualified disability expenses can include:

• Education, job training, and employment support
• Housing and utilities
• Transportation
• Assistive technology and related services
• Health, prevention, and wellness services and expenses
• Financial management and administrative services
• Legal fees
• Personal support services

It’s important to note that the expenses must be related to the disability or blindness of the account owner or beneficiary and must be incurred as a result of the disability. Additionally, the expenses must be reasonable and necessary to maintain or improve the account owner or beneficiary’s health, independence, or quality of life.

When using funds from an ABLE account or 529A ABLE account to pay for qualified disability expenses, the withdrawals are generally tax-free. However, it’s important to keep accurate records and documentation of all QDEs, in case of an audit by the IRS.

Benefits of Able Accounts

1. Like other tax-advantaged savings accounts, such as 401(k)s and IRAs, ABLE accounts offer tax benefits to account holders. Contributions made to ABLE accounts are made with after-tax dollars, but the earnings on those contributions grow tax-free. Withdrawals used for qualified disability expenses are also tax-free.
2. Funds held in an ABLE account are generally excluded from calculating an individual’s assets to determine eligibility for certain means-tested government benefits, such as Supplemental Security Income (SSI) and Medicaid. This means that individuals can save for disability-related expenses without risking the loss of important government benefits.
3. ABLE accounts can be used to pay for a wide range of disability-related expenses, including housing, transportation, education, healthcare, and more. Account holders have the flexibility to choose how and when to use their funds as long as they are used for qualified disability expenses.
4. Friends and family members can contribute to an individual’s ABLE account, which can help increase the amount of funds available for disability-related expenses.
5. Ease of use: ABLE accounts are relatively easy to set up and manage, and many states offer online enrollment and account management. Additionally, some states offer a debit card option for easier access to funds.

ABLE Accounts vs. 529 Plans