ABLE Accounts: A New Way To Invest For People With Disabilities

On December 19th, 2014, President Barack Obama signed a legislation called the Achieving a Better Life Experience Act. It is a tax-advantaged account for individuals with disabilities. The accounts are not available yet, because each state needs to put their own regulations in place, but it is estimated that most states should be ready within the next year or two.

ABLE accounts are an extension of the 529 Tax code. This is the same code that allows us to put away and invest money for secondary education. In a 529 plan, any increase in value in an invested account is tax free. The contributions are either pretax, or after tax; it depends on the state.

Contributions to an ABLE account are for people with disabilities that were diagnosed with the disability before age 26. There are two ways to qualify for eligibility. The first is that if the individual is already entitled to Social Security benefits based on blindness or a disability that occurred before the age of 26. In this case, they would automatically be eligible. The second way to prove eligibility is through a disability certification. This is a signed statement by a physician acknowledging that the individual has a mental or physical impairment that causes severe functional limitations that can be expected to last, or has lasted, for more than 12 months.

An account holder can put away the maximum amount that the gift tax laws will allow. Today, that amount would be $14,000. The account maximum is $100,000. Each beneficiary can only have one account and one account owner.

The biggest benefit of an ABLE account is that it does not count toward personal assets for individuals who wish to qualify for public benefits. Generally, personal assets are capped at $2,000 if a person wants to qualify for Medicaid of Supplemental Security Income benefits. Until now, it has been difficult for families to provide even basic support to children with disabilities without forcing them to be exempt from Social Security Income and Medicaid benefits. If the $100,000 limit is exceeded, Social Security Income benefits are suspended until the account balance falls below $100,000; they are not terminated.

Lisa Golshani, an estate planning attorney in Los Angeles that focuses on special needs trusts describes ABLE accounts as
"A great new tool that can help enable individuals with disabilities have greater independence and financial security. Rather than relying exclusively on public benefits, the ABLE account beneficiary can have an additional source of funds to tap into, when his/her needs are not being met."


The second benefit is a tax advantage. The money that goes into the account is either pretax or after tax, depending on the state, but any growth in the account will be tax-free. While it may not seem substantial, this can save anywhere between 15%-40% in taxes on account growth.

All uses of ABLE accounts must be for qualified expenses, but thankfully, qualified expenses has a broad definition in this case. Unlike a 529 savings plan, where expenses are limited to secondary education, room & board for secondary education, or school supplies, an ABLE account has a broad range of qualified expenses. Qualified expenses for an ABLE account including most day-to-day expenses that help the beneficiary (hence the name) achieve a better life. This includes, but is not limited to, education,

An ABLE account can work in addition to a special needs trust, or instead of one, depending one each individual circumstance. The cost of establishing an ABLE account will be considerably less than a trust, because there will be no lawyer fees, however, the maximum contribution on an ABLE account is less.

"ABLE accounts will not replace the need for a Special Needs Trust in many cases. Rather, the ABLE account can be used as a supplement to a Special Needs Trust to enable the beneficiary to have a measure of financial independence, when appropriate" says Golshani.


I am committed to updating my readers on any new changes in the ABLE act, and informing them of when they can start to set them up in different states. Please feel free to contact us with any questions and new findings at roxana.maddahi@gmail.com .


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