ABLE Savings Accounts Allow SSI and Medicaid Recipients to Save Money

ABLE savings accounts are special bank accounts for individuals with disabilities. (ABLE stands for Achieving a Better Life Experience Act, a federal law.) If you put funds in an ABLE account, they won't count as assets or resources for the purpose of SSI disability benefits or Medicaid (with some limitations, discussed below).

Without an ABLE account, individuals receiving SSI or Medicaid benefits aren't able to save over $2,000 because of asset limits, preventing them from planning for emergencies or saving for a down payment on a car or house. And parents of children and young adults with disabilities aren't able to give them funds to help them plan for the future.

ABLE savings accounts allow parents and relatives of people with life-long disabilities (or the individuals themselves) to contribute funds to the account, without causing the individuals to lose eligibility for government benefits.

In addition, SSI recipients who are eligible for ABLE accounts no longer need to quickly spend the lump sum of back payments they receive when they're first approved for SSI (which can be as high as $15,000 or more); they can instead put the money into an ABLE savings account for future use.

Who Qualifies for an ABLE Account?

To be eligible to use an ABLE account, you must have a disabling condition that began before age 26. Individuals over 26 can have an ABLE account as long as their disability began before they turned 26.

You must be able to show that your disability began before you turned 26. This requirement can be met by being approved for disability benefits through SSI (Supplemental Security Income) or SSDI (Social Security Disability Insurance) or by having a written diagnosis from a physician indicating that you have a physical or mental impairment that:

• is medically provable
• results in severe limitations in functioning, and
• is expected to last at least a year or result in death.

The Nuts and Bolts of ABLE Accounts

Anyone is allowed to contribute to an ABLE account, including the person with a disability or their relatives or friends, but only $18,000 (in 2024) from all sources is allowed to be put into an ABLE account per year. And an individual can only have one ABLE bank account.

However, if you are the beneficiary of the ABLE account and you work and earn income, you can contribute an additional amount to your ABLE account that doesn't count toward the $18,000 limit (and that may be eligible for the federal Saver's Credit). The limit for the additional amount is the same as the federal poverty level for one person, or $15,060 in 2024.

Any income earned from investments in the ABLE account isn't subject to income tax. An ABLE account can grow until it reaches $100,000 or more, but individuals will lose their eligibility for SSI if the account goes above $100,000. (The maximum amount for Medicaid is much higher, but it varies by state; generally, states use the same limit as they do for their 529 college savings plans.)

Unlike with special needs trusts, ABLE accounts don't require a trustee to manage the account. The beneficiary of the account (the disabled person) is the owner of the account and is able to spend the money on their own. (In the case of a minor or an incapacitated person, a parent or person with power of attorney can be given signature authority over the account.)

Federal Rules Regarding Deposits and Distributions

Most of the rules regarding ABLE accounts come from federal law. Federal rules about the money put in and taken out of an ABLE account include the following:

• Deposits into ABLE accounts are not federally tax deductible. (Some states provide state tax deductions, including Illinois, Michigan, and Pennsylvania.)
• Distributions from an ABLE account can be used only for "qualified disability-related expenses" (QDE), such as:
  • health care, including assistive technology and personal support services (such as home health aides)
  • housing (rent on an apartment or mortgage payments and a down payment on a house)
  • transportation
  • employment training
  • education expenses
  • financial management, and
  • basic living expenses.
• Withdrawals made for nonqualified purposes will be taxed as income, with a 10% penalty tax.
• Distributions from an ABLE account related to food or housing don't count as income in the month they're distributed and, unlike distributions from special needs trusts or free housing, they aren't treated as in-kind support and maintenance (ISM), which would decrease monthly SSI benefits.
• Distributions from ABLE accounts related to housing don't count as resources for SSI and Medicaid purposes unless they are held (instead of spent on housing) into the month after which they're withdrawn.
• Distributions from ABLE accounts related to non-housing expenses don't count as resources for SSI and Medicaid purposes in the month they're withdrawn from the account. Even if they aren't spent, they won't be counted as resources as long as the ABLE account is maintained and the money for non-housing needs is kept separate from other funds.
• When a person with a disability dies, in most states, any funds remaining in an ABLE account will be used to reimburse Medicaid for any services the person received from that program, after payments are made for funeral and burial expenses. California and Pennsylvania are two states that have shielded their ABLE accounts from Medicaid repayment (called Medicaid estate recovery).

Which States Have ABLE Programs?

While most of the rules regarding ABLE accounts are laid out in federal law, ABLE accounts are only available in states that have passed laws and regulations to make them available. Almost all states have ABLE programs up and running. Each state sets its own annual fees and investment options.

Four states have decided not to provide ABLE accounts (Idaho, North Dakota, South Dakota, and Wisconsin), but if your state doesn't have an ABLE program, you may be able to open an account in another state. Many states have now opened their programs to residents of other states, including California, Colorado, Illinois, Michigan, New Jersey, New York, North Carolina, Ohio, and Pennsylvania.

On the other hand, Texas, Florida, Georgia, South Carolina, Utah, and Vermont are among the states that don't allow out-of-state residents to participate in their ABLE account programs.

Several states have partnered with Ohio, the first state to launch an ABLE program, for their residents to use Ohio's STABLE program at in-state rates.

For information on your state's ABLE program, as well as a link to your state's ABLE program so that you can open an account, see Nolo's section on state ABLE account programs.