ABLE Accounts (529 A Savings Plans)
The Achieving a Better Life Experience (ABLE) Act of 2014 provided Americans with disabilities the opportunity to save up to $15,000 per year in a tax-deferred account similar to a 529 college savings plan, as a supplement to their government benefits.
An ABLE account, also called a 529 A account, allows individuals with disabilities and their families a tax-advantaged way to save money for disability-related expenses of the account’s designated beneficiary. The annual contribution limit for an ABLE account is $15,000 per individual (2018), and total contribution limits vary by state. Contributions to an ABLE account may be made by any person (the account beneficiary, family and friends) using post-taxed dollars. Contributions are not tax deductible, although some states may allow for state income tax deductions for contributions made to an ABLE account. Both 529 college savings plans and ABLE accounts are considered "municipal fund securities" and regulated under rules of the Municipal Securities Rulemaking Board, or MSRB.
Recently enacted Tax changes allow savings in a 529 account to be rolled into an ABLE account. You can roll over up to the annual contribution limit ($15,000) until January 1, 2026. Funds from one family member’s 529 plan can be rolled over to another family member’s ABLE account. However, the 529 account must be for the same beneficiary as the ABLE account or for a member of the same family as the ABLE account holder. In addition:
- ABLE account holders may also now contribute their employment income to their ABLE accounts in excess of the annual contribution limit, up to the prior year's individual federal poverty level.
- Designated ABLE account beneficiaries may now be eligible to claim the Saver's Credit.
How ABLE Accounts Work
Earnings in an ABLE account grow tax-deferred, and withdrawals are tax-free when used for qualified disability-related expenses, including, but not limited to, education, housing, transportation, assistive technology, employment training and support, financial management and health care expenses. Money in an ABLE account can be used over the lifetime of the beneficiary so long as funds are used for qualified expenses.
In general, individuals are eligible for an ABLE account if they are already receiving benefits under Supplemental Security Income (SSI) and/or Social Security Disability Insurance (SSDI). If not, they may still be eligible if they certify that they are blind or disabled and have a written diagnosis of their condition by a licensed physician. Under all circumstances, the onset of the disability must have begun prior to age 26.
The first $100,000 saved in the account is exempted from the Supplemental Security Income $2,000 limit (beneficiaries will still receive Medicaid if the account exceeds $100,000). Check with the state that administers your ABLE account for additional details related to this exemption, and whether it applies to your situation.
Each state establishes its own regulations to make ABLE accounts available and administers its respective plan. States also determine investment options available to families. Like 529 college savings plans, account owners are able to make changes to their investments two times per year.
Today, you can open an ABLE account using any state's plan. The requirement that you are only able to open an ABLE account in your state of residency was removed in 2015.
The ABLE National Resource Center, managed by the National Disability Institute, maintains a map that provides details of each state’s ABLE program. Some states may offer tax benefits for those who use their home state's plan—so it is a good idea to compare state programs.
Another reason to compare programs is that ABLE account fees vary by state. States typically charge a monthly maintenance fee and may provide discounts for residents or fee waivers if you maintain a certain balance in the account. The maintenance fees cover the cost of administering the program and are in addition to costs related to the underlying investments. Each state's plan offers different investment choices and may have minimum contribution limits, so make sure the plan you choose has investment options and fees that work for you.
For additional information, see the SEC Bulletin, An Introduction to ABLE Accounts.