ABLE accounts – A Tax Advantaged Tool For Special Needs Planning

Each year, millions of Americans with disabilities and their families rely on public benefits to help provide for income, health care, food and housing assistance.  Since eligibility for assistance through Supplemental Security Income (SSI), SNAP and Medicaid is based upon a resource test, disabled individuals seeking benefits are typically limited to no more than $2,000 in savings or assets.  In recognition of the significant costs associated with living with a disability, the Achieving a Better Life Experience (ABLE) Act provided a mechanism to create a tax-advantaged savings tool for individuals with disabilities and their families.  When operated properly, this overlooked savings account may allow families to build a small nest egg without impacting eligibility for public benefits. 

What is an ABLE account and who is eligible?

Designed to be a savings or investment account to supplement public benefits, an ABLE 529 A account can be a powerful strategy for individuals that previously were unable to build supplemental funds outside of a trust for their needs.  According to Ira M. Fingles, a partner with the NJ law firm Hinkle, Fingles, Prior, and Fischer which exclusively represents people with disabilities and their families, “Before ABLE accounts were available, a lot of people with disabilities were forced to curtail the amount they worked or saved so that they didn’t accumulate more than $2,000, in which case they would lose their SSI benefits, and most likely their Medicaid eligibility, eligibility for services from the New Jersey Division of Developmental Disabilities (DDD), and possibly others.”

An ABLE account is funded with after-tax contributions that can grow tax-free when used for a qualified disability expense.  The account owner is also the beneficiary and contributions can be made from any person including the account beneficiary, friends and family.  According to, the ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If you meet this age criteria and are also receiving benefits already under SSI and/or SSDI, you are automatically eligible to establish an ABLE account. If you are not a recipient of SSI and/or SSDI, but still meet the age of onset disability requirement, you could still be eligible to open an ABLE account if you meet Social Security’s definition and criteria regarding significant functional limitations and receive a letter of certification from a licensed physician. You need not be under the age of 26 to be eligible for an ABLE account. You could be over the age of 26, but must have had an age of onset before the individual’s 26 birthday.

Contributions are limited to $15,000 per year and since this is a sister of the 529 plan for education, the total contribution limit is based upon the individual state’s limit for 529 plans.  Individuals can have up to $100,000 in an ABLE account without impacting eligibility for SSI.  (The first $100,000 does not count toward the $2,000 resource restriction.)  When ABLE account values grow beyond $100,000, SSI benefits are generally suspended until the account falls back below the $100,000 threshold.  While having greater than $100,000 in an ABLE account can jeopardize SSI, this will not impact eligibility for medical assistance through Medicaid.  

Which plan to select?

ABLE accounts are administered by states and you are not necessarily forced to open an account in your state of residency.  This means that you can use any state program that accepts out of state residents.  (There are over 40 ABLE programs nationwide and some states such as Florida only accept in-state residents).  Just like selecting the right 529 plan, choosing an ABLE account is based upon an assessment of the investment choices, fees and any state level income tax benefits that may apply. 

Most state plans use a combination of mutual funds to create portfolios with varying degrees of risk and volatility, providing  options for both conservative investors with shorter time horizons and more aggressive investors that have longer time horizons.  Fees can vary greatly depending on the plan so be sure to carefully review plan disclosures and prospectuses.    

ABLE accounts can pair well with Special Needs Trusts

While ABLE accounts can be a powerful tool for special needs planning, like all strategies, there are some other considerations to be aware of.  One of the most common questions that arises is whether to use an ABLE account or a Special Needs Trust for planning purposes. Fingles notes, “ABLE accounts can serve many useful purposes, but they are subject to certain limitations that make it impossible, or at least ill advised, to use them instead of a Special Needs Trust. ABLE accounts can only receive $15,000 in deposits each year while in most cases, Special Needs Trusts can receive much larger contributions in a year once they are funded.”  This becomes especially important for parents that wish to leave more substantial assets to their child when they pass away but do not want to jeopardize the child’s eligibility for critical services. In this case, a Special Needs Trust may be more appropriate.

Fingles adds, “It is essential that those who are considering ABLE accounts understand that when the beneficiary of the ABLE account passes away, any remaining funds in the account are typically paid back to the State to reimburse it for the costs of providing services during the beneficiary’s life. This isn’t true of properly drafted Special Needs Trusts that are part of an appropriate estate plan for the family.”

While there are pros and cons to both ABLE accounts and Special Needs Trusts, try to avoid viewing these options as mutually exclusive.  Instead, families may want to consider pairing an ABLE account with a Special Needs Trust as this is an approach that can work well for many individuals and their families.

Additional considerations for Special Needs Trusts

It is also critical for families to understand that they must follow through with their special needs plan.  For example, once the Special Needs Trust is established, it is important to review and modify the beneficiary designations on life insurance policies and retirement accounts so that any funds intended to benefit the person with disabilities are directed into the Special Needs Trust and are not inherited directly which, in turn, could jeopardize their ability to receive future public benefits.

New for 2019

ABLE account owners who work, and do not have an employer- sponsored retirement account, may save up to $12,140 in additional savings from their earnings.

Special Needs Planning is a critical process for helping to address the needs of loved ones both today and in the future.  Since everyone’s situation is unique, consider speaking to an attorney and financial adviser that specialize in Special Needs Planning to determine the most appropriate approach for you.  All investing involves risk and be sure to consider whether your state offers an ABLE program that offers residents favorable tax benefits.

Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor.  He can be reached for questions at 732-280-7550,, & LPL Financial Member FINRA/SIPC.