A new type of savings option was made available for families of individuals with disabilities through the Achieving a Better Life Experience (ABLE) Act of 2014. The ABLE Act authorizes the establishment of private tax-advantaged savings accounts that can help families save for long-term disability-related expenses. Amounts in ABLE accounts do not affect Medicaid benefits and generally do not affect Supplemental Security Income benefits.
Who is eligible for an ABLE Account?
The account beneficiary must meet the definition of an “eligible individual.” The beneficiary can be any age, but his or her disability must have begun before age 26. In addition, to be eligible, the beneficiary must be entitled to Social Security Disability Insurance (SSDI) benefits or SSI benefits, or obtain a disability certification that meets IRS rules. Contributions may be made by the beneficiary, parents, grandparents, friends or others. Only one ABLE account can be opened for each beneficiary. The beneficiary may use the plan offered by his or her state of residence or by any other state.
What can account funds be used for?
Funds may be used for disability-related expenses. These qualified expenses may include the following: education, housing, transportation, employment training, assistive technology, health and prevention expenses and more.
How does an ABLE Account work?
Once an account is established for a beneficiary, account contributions will accumulate tax deferred and any earnings will be tax free at the federal level if the money is used for qualified expenses. If any funds are withdrawn and not used for qualified expenses, then the earnings portion of the withdrawal will be taxed at the recipient’s rate and subject to a 10% federal penalty. There are no federal tax incentives for contributions, but states may offer their own income tax incentives to residents such as a tax deduction for contributions. Upon the death of a beneficiary, amounts remaining in an ABLE account may be subject to a claim for reimbursement by the state Medicaid agency.
When will ABLE Accounts become available in my state?
Each state is responsible for establishing and operating an ABLE program.
States with currently available ABLE programs: