The Pros and Cons of ABLE Accounts

Takeaways

• ABLE accounts are tax-advantaged savings accounts for people with disabilities that generally allow them to save money without losing government benefits like Supplemental Security Income (SSI) or Medicaid.
• A key requirement is that the disability must have developed before the person turned 46.
• ABLE accounts offer greater independence, allowing the person with a disability to set up and manage the account themselves, and the funds grow tax-free.
• However, contributions are limited annually (e.g., $20,000 in 2026) and total account balances are capped ($100,000 for SSI eligibility). Funds remaining upon the account owner's death may have to be used to repay Medicaid benefits.
• ABLE accounts are not the only option. Special needs trusts (SNTs) can hold unlimited funds, avoid the Medicaid payback rule (if properly structured), and provide financial oversight by a trustee, which may be safer for some individuals.

As of 2014, a federal law called the Achieving a Better Life Experience (ABLE) Act has given eligible people with disabilities or their loved ones the ability to establish tax-free savings accounts that will not affect their ability to qualify for, or remain on, certain government assistance programs. Advocates fought for years for this law, which provides a tangible benefit to many people with disabilities. 

However, ABLE accounts may not be for everyone. Here are some pros and cons of these new accounts and how they compare to an alternative, special needs trusts.

The Pros of ABLE Accounts

• A person with disabilities can set up their own ABLE account with their own money instead of relying on a parent, grandparent, or court to establish a first-party special needs trust for them.
• The individual can manage the funds in their own ABLE account, making them less reliant on others for assistance and making it easier to access funds.
• Funds in ABLE accounts grow tax-free and are not subject to gift tax restrictions.
• ABLE savings plans are theoretically easy to set up with a local financial institution.

The Drawbacks of ABLE Accounts

• Currently, ABLE accounts can only be established for the benefit of people who developed their disabilities before turning 46 years old. By contrast, if a special needs trust is established with funds from the trust beneficiary, it does not matter when the person developed the disability.
• Some people with disabilities can be taken advantage of if they have control of their own funds. If a special needs trust was used to hold the funds instead, the trustee has a legal obligation to safeguard the funds.
• ABLE accounts have an annual contribution limit of $20,000 per year (in 2026). They can hold a total of up to $100,000 without hurting a Supplemental Security Income (SSI) beneficiary’s eligibility, whereas there is no limit on contributions to special needs trusts (although gift taxes could apply). (However, ABLE account owners who work may contribute up to an additional $15,560 (in 2026, depending on your state) of their gross income into their ABLE account if they do not have an employer-sponsored retirement plan.)
• Without the assistance of a qualified special needs planning professional, use of an ABLE account could seriously affect government assistance.
• ABLE account funds can only pay for qualified disabiilty expenses (QDEs), such as education, housing, or assistive technologies.
• If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary. Then the remaining funds will have to pass through probate (an often onerous court process) in order to be transferred to the beneficiary’s heirs.
  
  By contrast, if a special needs trust is used, there will be no probate process. And, in the case of a special needs trust established with funds that don’t belong to the beneficiary, there will be no Medicaid payback.

Learn More

ABLE savings plans can be useful tools in a variety of circumstances. But they are not the only, or in some cases, the best solution when a person with special needs wants to save money. Check out an infographic highlighting the basics on ABLE Accounts, as of 2023. For further reading related to special needs planning, check out the following articles:

• People With Disabilities Could Save More Under Proposed Bill
• The Risks of Crowdfunding for People With Special Needs
• How Life Care Planners Help Individuals With Disabilities
• 11 Common Special Needs Planning Acronyms