Tax-advantaged investment avenues for individuals with disabilities, provided by ABLE accounts.
If you or a loved one has a disability and are wondering about the role of an ABLE account in your estate plan, it's advisable to consult with a disability lawyer. This article aims to provide a clear and straightforward guide to ABLE accounts.
Eligibility for ABLE Accounts
To qualify for an ABLE account, an individual must have a significant disability that began before the age of 26. However, starting from January 1, 2026, the age limit will expand to include disabilities that began before age 46. The disability must cause marked and severe functional limitations, and eligibility can be demonstrated through receipt of certain Social Security benefits or a physician-certified disability diagnosis.
Investment Options and Contribution Limits
ABLE accounts offer tax-advantaged savings where contributions grow tax-free. Funds in the account can be used broadly for disability-related expenses, including housing, education, transportation, therapies, and daily living costs. Investment options vary by state, but generally, accounts provide multiple investment portfolios with different risk levels to meet individual growth and risk preferences.
As of 2025, the annual contribution limit is capped at $19,000, with potential additional contributions possible under certain conditions beginning in 2025. The ability to move funds from 529 college savings plans into ABLE accounts without penalty starts in 2026.
Qualified Expenses and State-Specific Features
Qualified expenses are broadly defined to include many disability-related costs. For instance, California’s ABLE program (CalABLE) has a higher maximum account balance limit of $529,000 compared to the typical $100,000 limit in other states. However, holdings above $100,000 can affect Supplemental Security Income eligibility, though Medi-Cal benefits are unaffected regardless of account size.
Some states offer enhanced features like higher balance caps or financial incentives. Each state administers its own ABLE account program, similar to 529 education plans.
Fees and Maintenance
Fund fees for many states' ABLE accounts are generally in the 0.25 to 0.50 percent range. Certain state plans reduce some fees if you maintain a specific account balance, enroll in electronic statements, or reside in the state sponsoring the ABLE account. Most states charge an annual maintenance fee for ABLE accounts, which can range from $15 a year to $58. Three states - Florida, Tennessee, and Massachusetts - do not charge account maintenance fees.
Inheritance Rules and Benefits
Inheritance rules for ABLE accounts can be complex, and it's important to understand how they apply in your state if you have a beneficiary in mind. Up to $100,000 in an ABLE account doesn't count against resource limits that determine public benefit eligibility.
The Advantages of ABLE Accounts
Investing in an ABLE account offers tremendous tax benefits, including tax-free growth of investments, tax-free withdrawals for qualified disability expenses, and the ability to qualify for the federal Saver's Credit. ABLE accounts give people with disabilities and their families a unique opportunity to invest for the future in a flexible, tax-advantaged account without jeopardizing public benefits. They can act as a secondary retirement plan for working adults with disabilities.
Meeting the Requirement for a Significant Disability
There are two ways to meet the requirement for a significant disability: receiving SSI or SSDI due to a disability before age 26, or a licensed medical doctor can provide a letter stating you have a disability that began before you turned 26.
In conclusion, ABLE accounts provide a valuable tool for individuals with disabilities and their families to save and invest for the future while maintaining eligibility for public benefits. It's essential to understand the eligibility criteria, investment options, and fees associated with these accounts to make an informed decision. Consulting with a disability lawyer can help clarify any questions or concerns you may have.
- To take full advantage of the tax benefits offered by ABLE accounts, individuals should consider them as part of their long-term personal-finance and career-development strategies.
- As one's education-and-self-development evolves, understanding the role of ABLE accounts in providing financial security for those with disabilities becomes increasingly significant.
