The Achieving a Better Life Experience (ABLE) Act was passed by Congress in 2014 and is one of the most significant laws that concern people with disabilities. It took nearly ten years for this piece of legislation to become a part of American law and involved the efforts of a diverse group of people including parents of children with disabilities. It marks a correction in the previous regulations that governed benefits awarded to persons with disabilities. 

What Are ABLE Accounts?

This federal law enables some people in America whose states have passed this law to invest in tax-free savings that will not impact their eligibility to receive government assistance. Before this act was passed, families who took care of persons with disabilities and wanted to ensure their financial security after the demise of their care-givers could only form a trust that did not preclude them from availing of state benefits. This was a complicated and expensive process. 

American tax laws allowed parents to avail of significant tax deductions when they had to save money for their other children’s college education. This benefit is available under Section 529 of the Internal Revenue Code, and they help parents to put away money that will be used for a specific purpose. It relieves parents/care-givers of the financial burden of expenses connected with taking care of a person with a disability. 

ABLE accounts work more or less in a similar way to the existing 529 accounts. They are administered by the states and not by the federal government. The money in this account is to be used for qualified disability-related purposes. This could include: 

  • housing
  • education
  • transportation
  • assistive technology
  • employment training
  • personal support services
  • financial management
  • administrative services
  • legal fees
  • funerals/burials
  • basic living expenses
  • fees paid to a third party to monitor the ABLE account

The main highlight of this program is that investors don’t lose their eligibility to qualify for federal benefits, employment income, Medicaid, and also Supplemental Security Income benefits. 

Anyone can contribute to the account with certain annual limits being mandated by law. 

ABLE Highlights

  • ABLE accounts are essentially investment accounts that give the holder a choice of investment options based on the level of risk that you would like to take
  • The account holder should have been disabled or the disability should have begun before age 26 to open an ABLE account
  • Annual contributions from all sources are limited to $15,000
  • The account holder need not enroll in their state of residence
  • A person with a disability can be named as the beneficiary of only one ABLE account
  • Funds in the account can grow tax-free 
  • Currently only 43 states have ABLE programs, but you can open an account in another state that does have it if yours doesn’t
  • When the ABLE account holder dies, the state where the account is held has the right to lay claim to some/all funds that remain in the account to meet Medicaid costs
  • Though the designated account holder is the person with a disability, signature authority can be held by a parent/guardian/POA holder
  • Contributions to ABLE accounts can be made by individuals, trusts, partnerships, estates, association, corporation or a company

Benefits of ABLE accounts

Tax-free investment and Tax-free Withdrawal: Funds can be invested in the ABLE account and these funds can also be withdrawn without attracting taxes, provided they fulfill the conditions laid down in the ABLE Act. 

SSIs and Supplementary Income: Your ABLE account will not supplant publicly available benefits such as SSI, though there is an upper limit that the account can hold before SSI is suspended. 

529 Rollover: If you have funds remaining in a 529 account belonging to the account holder or to a family member of the account holder that you may have created to benefit another child for college education, these funds can be rolled over into an ABLE account.

Exemptions: Earnings from an ABLE account are exempt from federal income taxes. However, the money in the ABLE account must be used only for certain qualified purposes as defined in the ABLE Act. In some states, these accounts are also exempted from paying state income taxes. Taxes will apply only if the sum withdrawn from the ABLE account is used for purposes other than those prescribed. 

Accounts Don’t Qualify As Assets: The first $100,000 in the ABLE account is not counted as the beneficiary’s personal asset. This is beneficial because programs such as Medicaid, SSI, and housing aid don’t allow individuals holding more than $2000 worth of assets as eligible to avail of their program benefits. 

Easy Operation: Most ABLE operations can be conducted online for the convenience of account holders and contributors. 

Estate Benefits For Contributors: Persons who wish to contribute to an ABLE account can lower the value of their own tax burden if they make gift contributions that fall within the gift tax exclusion limit. 

Independence: Persons with disabilities who can manage their own financial affairs can achieve a degree of independence by operating their own accounts. They can also deposit money in their own ABLE accounts if they are employed or earn an income from a business. They don’t have to depend on parents/relatives/guardians etc to achieve financial independence. 

Saver’s Credit: Since 2018, ABLE account holders can qualify for saver’s credit facilities if they contribute to their ABLE accounts. This is a special credit that’s intended to help moderate to low-income workers and it can reduce the amount of tax when they make a claim on Form 8880 (Credit for qualified retirement savings contributions). 

Other Retirement Plans: Contributors to ABLE accounts need to know the difference between Roth IRA and Roth 401k. There is no clear answer to the question “Which is better?” because it really depends on your unique situation and factors such as your age, income level, when you’d like to start withdrawals, etc. Roth 401k is more suitable for high-income earners, while Roth IRA offers more investment options and enables more convenient withdrawal. 


Natraj Studied bachelor's degree in finance and business from Telangana University, Nizamabad. A Writer based In India, He has a degree in Charted Accounts and has very knowledgeable in credit repair and Banking Sectors. So, I decided to start a blog and share my knowledge to the visitors.

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