Caregivers know more than most that living with a disability means extra expenses for housing improvements, assistive devices, and specialized healthcare. The Achieving a Better Life Experience (ABLE) Act of 2014 introduced an innovative savings tool: ABLE accounts.
These tax-advantaged savings empower eligible individuals with disabilities and bring relief to family caregivers, allowing them to save and invest for qualified expenses without jeopardizing SSI or Medicaid benefits. In this article, discover if you or your loved one is eligible.
An ABLE account is designed to help people with disabilities save money for qualified disability expenses without losing eligibility for certain public benefits, including Medicaid. Contributions grow tax-free, and qualified disability expenses aren't taxed.
The ABLE Act was passed with bipartisan support in 2014, specifically to address the issue that individuals with disabilities were often penalized for having savings or assets that exceeded strict limits set by public benefits programs. The goal was to provide a financial safety net for disability-related expenses without disqualifying individuals from essential benefits like Medicaid.
The ABLE Act lets eligible people with disabilities, including those who need care and have trouble with daily activities, open a special savings account.
Money in an ABLE account should be used for qualified disability expenses, including education, housing, transportation, employment training, healthcare, and other expenses that improve the quality of life for the individual with a disability.
To qualify, the account holder must have a disability that began before age 26. However, there is no age limit for opening an ABLE account as long as the disability occurred before age 26. For example, someone who is diagnosed with a qualifying disability at age 22 but does not open an ABLE account until age 35 is still eligible to do so.
Starting January 1, 2026, this age requirement will expand to include people with disabilities who started before age 46.
The account holder must meet the required severity of disability, meaning they either receive Supplemental Security Income payments or Social Security Disability Insurance Benefits or have a documented medical condition severe enough to restrict daily activities. The condition must be expected to last at least one year or result in death.
Once an ABLE account is opened, contributions can continue to be made and used for qualified expenses as long as they remain eligible--meaning their disability status and other criteria continue to be met.
You can open an Achieving a Better Life Experience (ABLE) account when on a Medicaid waiver.
When Medicaid decides if you can get benefits, the money in an ABLE account doesn't usually count so long as the account has less than $100,000. Even if the balance goes over $100,000, you won't lose Medicaid, but your Supplemental Security Income (SSI) benefits might be paused until the balance goes back under $100,000.
The annual contribution limit is $17,000 (subject to yearly adjustments) or the annual gift tax exclusion amount. There is no lifetime cap on party contributions, but remember, total contributions can't surpass the annual limit.
Money in an ABLE account should be used for qualified disability expenses.
Some examples of qualified disability expenses include:
Account holders are responsible for maintaining detailed records and documenting their expenditures to ensure they align with the qualified disability expense (QDE) guidelines. The ABLE program administrators usually don't ask for regular reports of expenses. Still, keeping your receipts, invoices, and any other relevant documents is important in case the IRS audits you.
If you are audited, using ABLE funds for non-qualified expenses could lead to tax penalties and loss of certain public benefits like Medicaid. To avoid this, ABLE account holders should carefully track their spending and only use the funds for qualified disability expenses.
Starting early and contributing regularly for a disabled child or relative are proactive steps toward providing your loved one with a financial safety net. This approach empowers eligible individuals and family caregivers to take control of their lives.
