What Are ABLE Accounts and How Do They Work?

ABLE is just the short name for Achieving a Better Life Experience Act.  ABLE is a federal law that allows a person with disabilities to own a taxed advantaged savings account.  A person with disabilities, if their disability arose before age 26, is able to transfer up for $17,000 a year, in 2023, to an ABLE account. Please also note that there will be an increase in the ABLE account age from age 26 to age 46 which goes into effect in 2026. The ABLE account is designed to work so that the assets in the account are not considered the person with disabilities’ resources or assets when it comes to being on a public benefit program that has an asset limit, like Medicaid or Supplemental Security Income.  The funds in that ABLE account can be used to pay for disability related expenses for this individual.  It can be used for paying for food or for shelter or adaptive equipment or a van or therapies. One of the important things to know about the ABLE Act or ABLE accounts is that there is a maximum amount of money that can be in the ABLE account at any given time. It’s going to take a while get there because you can only put in a certain amount every single year, but the maximum amount that can be in the ABLE account is $100,000 if someone wants to stay on that federal cash benefit, SSI, Supplemental Security Income.  Once it’s in there, it’s growing tax free, income tax free. So it’s a really nice tool for folks who want to be setting aside funds.  And it’s also a way for the individual with disabilities, if they’re competent, to manage their own assets instead of having someone else manage it for them, like in a trust, a special needs style trust. One of the important features of ABLE, however, is that it has what’s known as a Medicaid pay-back, which means that at that individual beneficiary stat, the person with disabilities, the one who owns the account, if they received Medicaid assistance during their life time, the states that provided Medicaid assistance are entitled to be repaid with whatever’s remaining in that account when that person dies. After that, if there’s still funds there, if can go to whoever that person names as a beneficiary. *Since initial publication of this blog post, figures for the 2018 estate and gift tax limits were updated to reflect changes in the final tax bill passed in December of 2017.