The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities (designated beneficiaries). Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses.
Overview
An ABLE account (Achieving a Better Life Experience account) offers a tax-advantaged way to save for qualified expenses related to disabilities. Contributions to ABLE accounts aren’t tax-deductible at the federal level, but the investments within these accounts grow tax-free. These funds can be withdrawn and used for various disability-related expenses, broadly categorized as anything that enhances health, independence, or quality of life. These expenses can include education, food, housing, transportation, employment training, assistive technology, healthcare, and more.
Similar to 529 college savings plans, ABLE accounts are managed by individual states, and most states have their own ABLE programs open to both in-state and out-of-state residents.
Key Details
- Eligibility: The account owner must have a qualifying disability or blindness that occurred before turning 26. Beginning in 2026, this age limit will change to 46.
- Account Ownership: Individuals aged 18 and older can open their ABLE accounts or designate someone to assist them. Minors or adults lacking legal capacity require an authorized person like a guardian or family member to open the account.
- Contribution Limits: Contributions to a single ABLE account are limited to the annual gift tax exclusion, which is $17,000 for 2023. Those with ABLE accounts who don’t contribute to an employer’s retirement plan may contribute an additional amount, typically related to their income and state of residence.
- Investment Options: ABLE accounts offer various investment choices, like mutual funds and money market funds. It’s crucial to align your investment choices with your financial goals and when you plan to use the money.
- Fees and Expenses: Be aware of fees associated with ABLE accounts, which may affect your returns. These include account maintenance fees, asset management fees, and expenses related to the chosen investment options.
- Tax Benefits: Earnings within ABLE accounts are tax-free if used for qualified disability-related expenses. However, withdrawals for other purposes may be subject to income tax and penalties.
- Impact on Benefits: Contributions, withdrawals for qualified expenses, and assets within ABLE accounts generally don’t affect means-tested federal benefits. However, qualified distributions for housing expenses can count toward resource limits for some benefits.
- Questions to Ask: When choosing an ABLE plan, consider factors such as fees, minimum account requirements, withdrawal methods, investment options, and any special benefits for state residents.
- Additional Resources: You can find more information about ABLE programs and resources through the ABLE National Resource Center, offering circulars from ABLE plans, and related materials from mutual funds.
In summary, ABLE accounts are a valuable tool for individuals with disabilities and their families to save for disability-related expenses while enjoying tax advantages. When selecting an ABLE plan, carefully evaluate your options and consider your financial goals and needs. Always seek professional guidance if necessary and stay informed about IRS guidelines and any state-specific benefits.
For more information, see SEC Investor Bulletin: An Introduction to ABLE Accounts.
