ABLE Accounts: Useful Tools in Special Needs Planning

Written by Jennifer McInerney, Attorney on 4/01/2022

In 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act. ABLE accounts are tax-advantaged savings accounts for individuals with disabilities and their families. It was created as a result of the passage of the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014 or better known as the ABLE Act. The beneficiary of the account is the account owner, and income earned by the accounts will not be taxed. Contributions to the account, which can be made by any person (the account beneficiary, family, friends Special Needs Trust or Pooled Trust), must be made using post-taxed dollars and will not be tax deductible for purposes of federal taxes; however, some states may allow for state income tax deductions for contributions made to an ABLE account.

It was not until 2016 that most states began offering the ABLE accounts to the public. In December 2017 President Trump signed the ABLE to Work Act and the ABLE Financial Planning Act. These two Acts made important changes to ABLE accounts which dramatically improved the benefits of ABLE accounts for disabled individuals.

  1. The ABLE to Work Act allows a beneficiary who is working to contribute more than $15,000 per year to his or her ABLE account (that limit increased to $16,000 in January of 2022). A beneficiary can now contribute his or her earnings to the account in addition to the standard limit. The amount of earnings is capped at the Federal Poverty Line (currently $12,880).

    As an example, a beneficiary earns $10,000 in a taxable year at his job. He could contribute those funds to an ABLE account. In addition, his family would still be able to contribute up to $16,000 to his account in that same year (making the total contribution to the account $26,000). Under prior law the beneficiary would be limited to a total of just the standard contribution limit.

    The “ABLE to WORK” provision, passed as part of the Tax Cuts and Jobs Act of 2017, allows certain ABLE account owners who work and earn income to contribute above the annual ABLE contribution limit. To be eligible, the ABLE account holder, or their employer, cannot contribute into a defined contribution plan such as 401(a) or 403(a) plan; an annuity such as a 403(b) contract; or an eligible, deferred compensation plan, such as a Section 457(b) plan in the calendar year.

  2. The ABLE Financial Planning Act allows a roll over from a 529 education plan to an ABLE account. The amount of the rollover cannot exceed the maximum annual contribution limit for ABLE accounts (currently $16,000). This amendment is beneficial for families who may have established a 529 education account for a child who is now disabled and would no longer need those funds for higher education purposes. The existing 529 account can be rolled over to an ABLE account and the funds would be available for any “qualified disability expense.” Permissible distributions from an ABLE account are discussed in more detail below.

ABLE Basics

The ABLE Act allows disabled individuals to establish tax advantaged savings accounts, which are quite similar to the Section 529 education savings accounts. The advantage of an ABLE account is that any income earned in the account is not taxed. Further, the account would not be a countable asset for government benefit purposes (subject to certain restrictions discussed below). The assets in the accounts can then be spent on qualified disability expenses (very similar to the education account rules where assets must be spent on qualified education expenses).

This Act is significant because it allows a disabled individual to have more leeway in saving money for future expenses. The general rule is that an individual is ineligible for SSI and Medicaid if they have more than $2,000 in countable resources. Therefore, any savings account exceeding $2,000 would automatically disqualify that beneficiary from such needs-based assistance.

Anyone can establish and contribute to an ABLE account, but the account must be established for a designated beneficiary. Even the designated beneficiary himself or herself can establish and contribute to an account. There are several important requirements and restrictions regarding an ABLE account:

  1. A beneficiary may have only one ABLE account.

  2. The beneficiary’s qualifying disability must have occurred prior to age 26 (however the account can be established at any age, so long as the qualifying disability occurred prior to age 26).

  3. The beneficiary must be “disabled.” The beneficiary is deemed disabled if he or she is receiving either SSI or SSDI.

  4. There are certain financial limits for these accounts. First, the total amount that may be contributed on a yearly basis is $16,000. This amount is the same as the annual gift tax exclusion and as that exclusion (which is adjusted for inflation) increases, the contribution limit will also increase. A beneficiary may be able to contribute more than $16,000 in a year if they have earned income (see the above discussion of the ABLE to Work Act).

    Second, the total amount that an individual may have in the account will be the same as a state’s limits on Section 529 plans. However, the practical limit is going to be $100,000, as that will be the limit for SSI purposes. Social Security will consider any funds over $100,000 to be a countable resource. There are also lifetime limits to consider! In Alabama, the lifetime contribution limit of an ABLE account is $475,000.

  5. Once the account is established it can only be spent on “qualified disability expenses,” which the law defines as “expenses related to the eligible individual’s blindness or disability.” The law provides some examples, which include: education, housing, transportation, employment training, financial management and administrative services, legal fees, and funeral and burial expenses and other expenses.

  6. One important limitation in the Act is that any amounts remaining in the account upon the death of the beneficiary must be repaid to the State for prior Medicaid benefits. An ABLE account may be re-designated for another individual, but not after the death of the designated beneficiary.

In some cases, an ABLE account can be a better alternative to a special needs trust, as the beneficiary would have more control and it would be less expensive to establish and administer. The downside is that unlike a special needs trust, the amount will be effectively capped at $100,000. In addition, the ABLE accounts require a Medicaid payback upon death, whereas there is no such payback requirement for special needs trusts established with a third party’s funds.

ABLE accounts present an additional planning opportunity where a beneficiary may have a reduction in his or her SSI because a third party is providing support for food or shelter. Social Security will reduce SSI benefits by one-third when there is “in-kind support and maintenance.” Distributions from an ABLE account would not result in a one-third reduction.

These accounts are another useful tool available in special needs planning. An individual should consult with their legal and financial advisors regarding the appropriateness of these accounts for their own plan. Everyone’s situation will be different. In some cases, an ABLE account will provide a tremendous benefit for a disabled individual, but in others that individual may be better suited with a special needs trust.

For questions on these and other useful tools in special needs planning, please contact Alabama ABLE or the author of this Blog, Jenny McInerney at or (205) 871-1440.