On December 19, 2014, the ABLE Act was passed, which amends Section 529 of IRS Code of 1986. This allows individuals with disabilities to have tax-advantaged saving accounts that can help supplement but not replace any private insurance, Medicaid, or Supplemental Security Income, and more.
What is an ABLE account? ABLE accounts operate as a tax-free savings and investment tool, similar to a 529 college savings plan, with the primary goal of catering to individuals with disabilities. Provided by states, these accounts, also known as 529A accounts, allow financial assistance from family and friends without jeopardizing government aid or services.
The account owner and beneficiary is the individual with the disability, ensuring autonomy. The funds in an ABLE account can be utilized for various purposes including education, housing, transportation, health, wellness, and more. Withdrawals must contribute to “maintaining or improving their health, independence, or quality of life,” as outlined in IRS Publication 907.
Friends and family can contribute up to $18,000 per year to an ABLE account and withdrawals are tax-free. In order to open an ABLE account, individuals/guardians can explore state-specific programs through the ABLE National Resource Center’s website, taking into consideration factors such as tax credits and available services. Currently, as of 2024, most states provide an ABLE plan. If your state doesn’t offer an ABLE plan or if it doesn’t align with your tax strategy, you have the flexibility to choose another state’s plan that better suits your needs.
These accounts offer families peace of mind by providing a structured means to plan for the future of their loved ones with disabilities without jeopardizing their eligibility for essential benefits like Medicaid and Supplemental Security Income (SSI). Traditionally, strict asset and income limits imposed by government benefit programs have hindered families’ ability to save for their disabled family member’s future, leaving them vulnerable. However, ABLE accounts exempt a significant portion of assets from asset limits for SSI eligibility, offering families the opportunity to accumulate savings while maintaining crucial benefits. This financial tool empowers families to take control of their financial planning, ensuring a more secure and prosperous future for their loved ones while preserving their access to vital support systems.
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