ABLE savings accounts for the disabled

People with disabilities and their families rely on a wide variety of public programs for income, health care, housing and food assistance. In order to be eligible for public benefits such as SSI or SNAP, an individual must meet a resource requirement that limits their liquid resources such as cash, savings or checking accounts to less than $2,000. In 2014 Congress recognized that individuals with disabilities often have significant extra expenses and passed the Achieving a Better Life Experience Act, commonly known as the ABLE Act, which allows individuals with disabilities and their families to create tax-advantaged savings accounts for the benefit of the disabled person.

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The SSA has established a means for some recipients of disability benefits to save up to $18,000 a year (2024) tax free that will not change their disability status.

These ABLE accounts provide people with disabilities an opportunity to save and pay for a variety of Quality of Disability Expenses without risking their eligibility for disability benefits like Supplemental Security Income (SSI) or Medicaid.

The intention of this legislation is to “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.”

To qualify for an ABLE account, you must have a disability that began before your 26th birthday that meets the Social Security Administration’s criteria for functional limitations and a letter of disability certification from a licensed physician.

You are automatically eligible if you receive benefits from programs that apply the same Social Security Standards, including Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Disabled Adult Child (DAC), Medical Assistance (M), or Medical Assistance for Employed Persons with Disabilities (MA-EPD).

If you have been denied disability don’t give up! Contact a Disability lawyer at 512-454-4000 for a free consultation and get the benefits you deserve.

An ABLE account can be opened by the beneficiary, a parent, guardian or agent designated by a power of attorney, but the beneficiary is the account owner.

Contributions may be made to the account by the beneficiary, family members, friends, or a Special Needs Trust or Pooled Trust, but must be made with post-taxed dollars and are not tax deductible for federal taxes. (Some states may allow state income tax deductions for contributions). Income earned on an ABLE account is not taxed and withdrawals are tax-free if used for qualified expenses.

Funds in an ABLE account may be spent for any qualified disability expense including:

•    Basic living expenses
•   Transportation and public transportation
•   Medical expenses (including medical insurance)
•   Housing (including rent, mortgage payments, property taxes, utilities such as water and electricity, and furniture)
•   Employment training
•   Education
•    Any technological devices which help a disabled person carry out daily activities
•   Legal and financial management services
•   Personal assistance services

You are responsible for keeping records of deposits to and withdrawals from your ABLE account.

Keep receipts for all your expenses; if you are audited by the Internal Revenue Service, you will need to prove that an expense is a qualified disability expense. If money is withdrawn from your ABLE account and not used for a qualified disability expense, you may owe federal tax on that amount in addition to a 10% penalty and it could also impact any other benefits you receive.

Setting up an ABLE account is relatively easy and can be done online or over the phone.

You can open an ABLE account in any state that has an ABLE program; you do not have to live in a participating state to open an ABLE account. You may only open one ABLE account so it’s wise to compare programs and choose a plan that works best for you. Each state establishes its own regulations and administers its own plan. Some plans offer tax benefits for individuals who use their home state plan and others provide discounts or waivers if a certain balance is maintained. Account fees to cover the cost of administration and other costs related to underlying investments also vary by state. The ABLE National Resource Center maintains a map providing details of each state’s ABLE program. For information on ABLE accounts in Texas, see www.texasable.org.

The total annual amount that can be contributed is periodically adjusted to account for inflation.

Recently the contribution limit was increased to $18,000 in 2024. This is the combined total of your contributions and any funds you receive from family and friends. Once this amount is deposited, you cannot contribute any more until the following year. ABLE account owners who are working and who do not participate in an employer-sponsored retirement plan may contribute more than $18,000. The additional amount they may contribute is the lesser of: 1) their annual gross salary, or 2) the individual Federal Poverty Level for the prior year which is $15,060 for 2025 in the continental US. This means that an eligible working individual can, depending on their income, save up to $33,060 in an ABLE account in 2025 without impacting some benefits due to asset limitations.

Added contributions can be made each year through the end of 2025.

You can save up to $100,000 in an ABLE account without risking eligibility for Social Security and other benefits. The Social Security Administration exempts the first $100,000 from the SSI resource limit which is $2,000 for an individual and $3,000 for couples. If your ABLE account balance exceeds $100,000 and exceeds the SSI resource limit, either alone or combined with other resources, your SSI payment will be suspended until countable resources are below the allowable limit.

Any money left in the account if you die will be used to pay back the MA program for benefits you received since you opened your ABLE account because the account is in your name.

After that, funds remaining in the account must go through probate, which may be a long process, before it goes to your designated heirs. This may cause problems for some beneficiaries, so you may want to consider establishing a third-party Special Needs Trust. This type of trust may be set up by a parent or relative to supplement the needs of the disabled person. A trustee is appointed and authorized to pay expenses not covered by government benefits that enhance a disabled person’s quality of life. For example, the trustee could pay for cable television or other entertainment, but not basic living expenses like rent or housing. The assets of the trust are not counted in determining whether the beneficiary qualifies for a government program because the trustee is not legally obligated to distribute funds to the beneficiary. Money in a trust isn’t used to repay MA benefits, there are no contribution limits, and it doesn’t go through probate. You can have both an ABLE account and a Special Needs Trust.

ABLE accounts are a valuable financial tool for people with disabilities.

Research plans in a variety of states to find one best suited to your needs and keep in mind the following rules to avoid costly mistakes:

•    You may contribute $18,000 per year and no more.
•   Funds must be spent only on qualified disability expense.
•   If the balance in your ABLE account rises above $100,000, your SSI benefits will stop. Benefits will resume when the balance in the account goes below $100,000.

Author: Attorney Greg Reed has been practicing law for 29 years. He is Superlawyers rated by Thomson Reuters and is Top AV Preeminent® and Client Champion Gold rated by Martindale Hubbell. Through his extensive litigation Mr. Reed obtained board certification from the Texas Board of Legal Specialization. Greg is admitted to practice in the United States District Court - all Texas Districts and the United States Court of Appeals-Fifth Circuit. Mr. Reed is a member of the Travis County Bar Association, Texas Trial Lawyers Association, past Director of the Capital Area Trial Lawyers Association, and an Associate member of the American Board of Trial Advocates. Mr. Reed and all the members of Bemis, Roach & Reed have been active participants in the Travis County Lawyer referral service.