7 FAQs about ABLE accounts

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7 FAQs about ABLE accounts

Achieving a Better Life Experience (ABLE) accounts were created in 2014 to allow people with disabilities to build tax-favored savings. Here’s how ABLE accounts work and how they’re used.

1. What is an ABLE account?

ABLE accounts are state-sponsored, tax-advantaged accounts that are similar to 529 college savings plans. Qualified individuals can contribute thousands in after-tax dollars to the account, where the invested money grows tax-sheltered. Withdrawals are tax free if used to pay for eligible disability-related expenses to enhance the life of the beneficiary.

Did you know? Before ABLE accounts, people with disabilities were disqualified from federally funded, means-tested benefits if they had more than $2,000 in personal savings.

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The number of states (and D.C.) with ABLE programs


The number of ABLE accounts nationwide

Open to state residents only: Arizona, Florida, Georgia, Kentucky, Lousiana, Missouri, New Hampshire, New Mexico, New York, Oklahoma, Oregon, South Carolina, Texas, Utah, Vermont, Washington, West Virginia, Wyoming.

No ABLE programs: Idaho, North Dakota, South Dakota, and Wisconsin.

All other states ABLE programs are open to residents of all states.

Source: National Association of State Treasurers, June 30, 2021.

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2. Who is eligible?

You can open an ABLE account (one per person) at any age. However, the account owner, who is also the beneficiary, must have a qualifying – physical, mental, developmental or other condition -- disability that occurred before age 26.

Receiving benefits under Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) is an automatic qualifier. Alternatively, you can submit a written certification from a physician.

Note: An update in the tax law allows families, until the end of 2025, to roll money from a 529 college savings plan into an ABLE account if it’s for the same beneficiary or a family member of the beneficiary.

3. What can the money be used for?

The money must be spent on “qualified disability expenses” for the benefit of the account owner. Those expenses cover a wide range, such as housing, healthcare, education, job training, assistive technology, personal support services, financial management, legal fees and funeral costs.

Be aware: If the money isn’t used for qualified expenses, the earnings on the withdrawals will be subject to income tax and a 10% penalty.

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Average savings in ABLE accounts

$877.7 million

Invested in ABLE accounts nationally

Source: National Association of State Treasurers, June 30, 2021.

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4. What are the contribution limits?

Anyone – from the beneficiary and family members to friends and trusts – can contribute to an ABLE account, but the total yearly amount from all sources can’t exceed $15,000 in 2021.

An exception: Working beneficiaries who don’t participate in an employer retirement plan can also contribute their earnings, up to the federal poverty limit, even if that would push total contributions above the $15,000 annual cap. In almost all states, the federal poverty limit for individuals in 2021 is $12,880 ($14,820 in Hawaii and $16,090 in Alaska).

States also set limits on how much you can hold in an ABLE account, ranging from $235,000 to $529,000.

Note: Low- to moderate-income workers contributing earnings to their own ABLE account may be eligible for the Saver’s Credit, a tax break worth up to $1,000 for an individual.

5. How does an ABLE account work with federal benefits?

An ABLE account has no impact on Medicaid eligibility. However, if the account exceeds $100,000, it can lead to a temporary suspension of Supplemental Security Income (SSI) benefits until the balance drops below that amount.

Note: If the beneficiary dies, any remaining account balance can go toward reimbursing the state for Medicaid benefits received since the account was opened.

6. Must I invest in my home state’s plan?

No. More than 40 states and the District of Columbia offer ABLE accounts, and more than half of them open their plans to outside residents. However, nearly a dozen allow residents to deduct some or all of their contributions to their home-state plan, so it’s a good idea to start your search with your state’s plan.

Resource: Find out about the ABLE account that’s offered in your state or available to residents of all states NAST.org/able.

7. What are the investment choices?

As with 529 college savings plans, ABLE account investments range from conservative to aggressive growth portfolios. Accounts may also offer a low-risk money market fund or an FDIC-insured savings account or checking account tied to a debit card. Investors generally can change their investments twice a year.

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Sources: ABLE National Resource Center; IRS.gov; Savingforcollege.com; Social Security Administration; US Securities and Exchange Commission; National Association of State Treasurers.

© December 2021 The Kiplinger Washington Editors Inc.

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© 2022 The Kiplinger Washington Editors, Inc.
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