How to Support a Disabled Loved One With an ABLE Account

Back in 2014, Congress authorized Section 529A accounts under the Achieving a Better Life Experience (ABLE) Act to help support disabled people and their families. The act generally allows participants to save money in tax-advantaged accounts without affecting their eligibility for means-tested government benefits, such as Medicaid or Supplemental Security Income (SSI).

The SECURE 2.0 Act reaffirmed the government's support for these accounts and opened them to broader participation in the future. Learn whether an ABLE account can help you support a loved one who's disabled — even after you're gone.

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Tax Advantages

Under the ABLE Act, you may contribute funds to a designated account that grows without current tax erosion, much in the same way as a 529 plan, and there's no tax on distributions paid for qualified expenses. ABLE accounts currently may be used only to benefit individuals who experienced a disability at age 26 or younger and who satisfy certain Social Security criteria. However, beginning in 2026, SECURE 2.0 increases the eligibility age to 46, which is intended to help those who become disabled later in life, such as members of the military.

More than 40 states and the District of Columbia have established ABLE accounts for residents — but if you live in one of the handful of states that doesn't permit the accounts, you can create one in a state that allows nonresidents to participate. Fees paid to administer these accounts generally are minimal.

ABLE accounts can be managed by their beneficiaries. However, these responsibilities typically are handled by the parents of beneficiaries, financial or legal professionals, or other individuals acting under a power of attorney.

Funding an Account

Funds in an ABLE account are invested through options authorized by the applicable state. Investment changes may be made twice a year, and only one ABLE account can be set up for a qualified individual. Normally, contributions are tied to the annual gift tax exclusion — $17,000 in 2023 — which is indexed for inflation. Lifetime contributions are limited to the amounts imposed by the individual state for 529 plan accounts. These limits are generally at least $250,000, and can exceed $500,000.

Note that there can be complications related to government programs. Disabled individuals who meet SSI or Medicaid requirements and receive benefits from either, or both, are eligible for an ABLE account. The account's funds don't count toward the limits on personal assets for public benefits. But if the assets in an ABLE account exceed $100,000, the beneficiary's SSI benefits will be suspended until the total drops below this threshold. Medicaid eligibility won't be affected by the account's amount.

Also, be aware that contributions to an ABLE account aren't tax deductible for federal tax purposes. However, some individual states have carved out limited state income tax benefits for these accounts.

Distribution Rules

If the funds in an ABLE account are used to pay for qualified expenses, payouts are exempt from income tax. Qualified disability expenses must go toward maintaining or improving the health, independence or quality of life of the beneficiary. These include expenses for such items as:

However, if withdrawals are made for nonqualified expenses, the portion of the distributions attributable to earnings is subject to tax at ordinary income rates. Plus, a 10% penalty tax will be imposed on that portion of the distribution.

Other Options

If you want to help provide lifelong support to your child or another family member, consider opening an ABLE account. But discuss your options first with your financial advisor. Other potential tools include special needs trusts and converting standard 529 plans or Roth IRAs.

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