Tax-Free Savings Accounts for People with Disabilities

  • April 4th, 2023
ABLE Accounts can help pay for health care, housing, and more. See long description of full infographic at the end of the article.
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A law passed by Congress and signed by President Obama in 2014 allows people with disabilities who became disabled before they turned 26 to set aside up to $18,000 a year (as of 2024) in tax-free savings accounts without affecting their eligibility for government benefits.  

As things stand now, a person diagnosed with a disability generally can’t have assets worth more than $2,000 without forfeiting eligibility for government programs like Medicaid and Supplemental Security Income (SSI). 

Passage of the ABLE Act

Under the Achieving a Better Life Experience (ABLE) Act, the tax-free savings accounts can be used to pay for qualifying expenses such as the costs of treating the disability or for education, housing and health care, among other things. The existence of the accounts will not compromise the individual’s ability to qualify for benefits like SSI or Medicaid as long as the account balance does not exceed $100,000.  

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States must set up programs for families to invest in the new so-called “529A accounts” and will provide investment options. With the Act having effect at the beginning of 2015, ABLE accounts have become one more tool for families of people with special needs to use in order to protect their loved ones' valuable benefits while enhancing their quality of life. 

Why You May Still Need a Special Needs Trust

But because the accounts can hold only up to $100,000 without negative repercussions, and especially since they apply only to people who became disabled when they were young, most, if not all, families of people with disabilities will still need to consider setting up traditional special needs trusts if they want to properly care for their relatives with special needs. 

Many of these trusts can also be drafted to protect the trust assets from Medicaid estate recovery if they are funded with money from family members and not the trust beneficiaries.

Know the Rules for ABLE Accounts

Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for their family members. Therefore, it is imperative that anyone thinking about establishing an ABLE account speak with a special needs planner first in order to make sure that all of the pieces of a special needs plan will properly align with the ABLE account.

Get more details about the ABLE Act

See also Special Needs Answers' related article on the pros and cons of ABLE accounts.

Full description of infographic: Title reads "Why Consider an ABLE Account?" and features 11 blocks of content that read as follows: Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014; For families who have dependents with disabilities: The ABLE Act provides a way to set aside savings money, tax-free, for their loved one; ABLE Accounts can hold up to $100,000; ABLE Accounts are for people with disabilities who were diagnosed with a disability before age 26; Individuals with disabilities can manage their own ABLE accounts, giving them a measure of financial independence; Up to $17,000 per year can be contributed to an ABLE Account; Nearly 120,000 have ABLE accounts nationwide; ABLE Accounts can help pay for disability treatment, assistive technology, education and training, housing, living expenses, health care, legal fees, and transportation; As of 2022, 46 states as well as the District of Columbia have active ABLE account programs in place; Did You Know? ABLE account owners are not at risk of losing their eligibilty for government benefits, such as SSI or Medicaid; Find an ABLE Account program in your state:

Created date: 12/22/2014


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