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ABLE To Save: Could an ABLE Account Be Right for You?

ABLE To Save: Could an ABLE Account Be Right for You?

Last Updated: April 2, 2024

For millions of Americans with disabilities, Supplemental Security Income (SSI) payments are crucial in their search for financial stability. Unfortunately, without a 529A ABLE account, these payments can be put at risk.

Over 7 million Americans received SSI payments in 2022, with nearly 85% of those payments distributed to people with disabilities. This benefit often comprises a large portion of the recipients’ monthly income, as only 2.8% of SSI beneficiaries receive a wage or other form of earned income.

However, eligibility for SSI comes with a major caveat: Unmarried recipients cannot have more than $2,000 in assets. For married recipients, the maximum is $3,000 in assets. As a result of this limitation, many families have had to choose between building their savings and reducing their income—an impossible dilemma.

In response to this predicament, Congress created a new savings tool: the 529A ABLE Saving Plan. These accounts are already making it possible for people with disabilities to accrue meaningful savings, invest in their future, and even purchase a home. In this article, we’ll discuss what an ABLE account is and how this savings tool could potentially deliver financial security to millions of Americans today.

What Is a 529A ABLE Account?

Passed in 2014, the Achieving a Better Life Experience (ABLE) Act created a tax-advantaged savings plan designed for people with disabilities to save for “qualified disability expenses.” Importantly, the first $100,000 in an ABLE account is not counted against SSI’s $2,000 asset limit. This means that participants and families can build a significant nest egg without impacting their SSI benefits

Also, much like 529 college saving plans, 529 ABLE plans are created by federal legislation but administered by the states and the District of Columbia.

How Does a 529A ABLE Account Work?

An ABLE account works similarly to a college savings plan but for qualified disability expenses instead of education. As a tax-advantaged plan, contributions to one's ABLE account are invested, grow tax-free, and can be withdrawn tax-free to pay for qualified expenses. This means each dollar invested in an ABLE account goes a much longer way than those saved in a traditional savings account.

Additionally, ABLE accounts open up saving opportunities beyond equities investing. Plan funds can be used to purchase appreciating assets that are similarly not counted against SSI’s $2,000 asset limit, such as a home. As an example, a saver could withdraw $80,000 from their account, purchase a primary residence, and then gradually replenish their account of the $80,000 without losing SSI benefits.

The annual contribution limit for ABLE accounts is $18,000 in 2024, up from $17,000 in 2023.

What Can You Spend ABLE Plan Funds On?

With an ABLE plan, distributions are intended for spending on “qualified disability expenses.” However, there is significant flexibility in what counts as a qualified disability expense, within the bounds of certain constraints. Acceptable use of ABLE funds includes spending on:

  • Education & employment training
  • Housing & transportation
  • Personal support services & assistive technology
  • Healthcare costs
  • Financial management & administrative services

The flexibility offered by these plans gives ABLE savers, including parents of children with disabilities, the ability to save for important life purchases and achieve a safe and secure future for their children.

Who Is Eligible to Set up an ABLE Account?

Eligibility is limited to individuals with disabilities whose onset of disabilities occurred before turning 26 years of age. For some individuals, qualifying for an ABLE account is incredibly straightforward. For example, people who are currently receiving SSI payments and whose on-set of disabilities occurred before the age of 26 are automatically qualified. However, the ABLE Age Adjustment Act passed in 2021 increased the age of ABLE eligibility from “before age 26” to “before age 46,” which will become effective January 1, 2026.

What Does One Need to Consider Before Setting up an ABLE Account?

As with any specialized savings account, the value of an ABLE plan is dependent upon your unique circumstances, goals, and financial situation. Some key takeaways regarding ABLE plans are:

  • Preserve SSI Eligibility - The first $100,000 put into an ABLE account is not counted against the $2,000 asset limit for SSI. Americans with disabilities can use this unique type of savings plan to build a significant nest egg.
  • Flexibility with ABLE Distributions - ABLE distributions can be spent on a wide range of qualified disability expenses, including housing, transportation, education, training, assistive technology, and other health-related services.
  • State and Federal Tax Benefits - The investments within your ABLE account grow and are tax-free if used for qualified disability expenses.
  • Penalty for Non-Qualified Withdrawals - The saver requesting a withdrawal will have to pay taxes on the earnings portion of their distribution, as well as an additional 10% tax penalty if a distribution is used for a non-qualified expense.

Conclusion: Is a 529A ABLE Saving Plan Right for You?

A 529A ABLE savings plan can be a powerful tool for individuals with disabilities and their families to help pay for qualified disability expenses. When deciding to open an ABLE account, savers should understand their financial situation, keep their long-term financial goals in mind, and have an open conversation with their loved ones about planning for the future.