What's an ABLE account?

What's an ABLE account?

Tax-advantaged savings accounts for children with disabilities are now available in some states. Although similar to 529 college savings plans, there are significant differences and they are not interchangeable. Establishing a number of operational and reporting requirements for these new plans have delayed start dates in many states. Read the FAQ below for a preview:


No Wisconsin ABLE plan    In March 2016, the Wisconsin Legislature passed and the Governor signed 2015 Act 312. This legislation ended preliminary work on developing a state ABLE plan and there will not be a Wisconsin-sponsored ABLE program offered at this time. However, residents may open one ABLE account in another state, if that state allows nonresident accounts.  About 20 states currently offer ABLE plans for nonresidents.

Along with tax-advantaged savings for qualified disability expenses, the assets in an individual's ABLE account interact with eligibility for some financial benefits. Taxpayers should seek advice based on their own particular circumstances from an independent advisor(s) regarding tax and/or disability benefits.  

Consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing in an ABLE account. This and other information is contained in the ABLE plan Program Description document provided by the issuing state. Read it carefully and be aware the laws of the issuing state may have preference over those of Wisconsin.

Some choices may be subject to investment risks, including the loss of principal amount invested, and may not be appropriate for all investors. The earnings portion of non-qualified withdrawals from ABLE accounts may be subject to federal and state taxes and the additional federal 10% tax.

The information in the FAQ below is of a general nature, gathered in 2015, and should not be relied upon as legal advice.

Frequently-Asked-Questions about Achieving a Better Life Experience (ABLE) Savings Accounts


What are ABLE savings plans?

In late 2014, the U.S. Congress enacted the Achieving a Better Life Experience (ABLE) Act, permitting states to establish tax-advantaged savings accounts for certain individuals with disabilities for certain disability-related expenses. In addition, these ABLE funds would generally not be considered for the supplementary security (SSI) program, Medicaid, and certain other federal means-tested benefits.

An ABLE account would allow individuals with a disability to save and invest money without losing certain benefits.  Income from the account would be tax-free when used for qualified expenses. (Nonqualified withdrawals will tax gains as ordinary income plus a 10% penalty.)

During 2015, the U.S. Treasury Department has issued preliminary rules, along with proposed permanent rules, as states develop programs for their residents. Due to the complexity of the ABLE law's operating and reporting requirements as municipal fund securities, no state will be ready to offer ABLE accounts until mid-2016 or later.

In late 2015, federal legislation removed what had been a 'home state only' rule for account owners. Residents of a state may now open one ABLE account in other states, where permitted; some states may not allow nonresident accounts.  


How is an ABLE account different from a 529 college savings account?

Both plans are tax-advantaged savings accounts, to help families and individuals save for future expenses.  While 529 accounts can only be tax-free when used for qualified higher education expenses, ABLE accounts have a broader list of qualified disability expenses.  There are restrictions that are different from 529 college savings, including: a cap on annual contributions, only one account per beneficiary, age and transfer limitations, as well as other specified items if the disability is cognitive, physical, developmental, etc.


Who is an eligible individual who may open an ABLE account?

Someone who became blind or disabled before the age of 26. Age at diagnosis is not a factor as long as the disability began before age 26.

An individual must also qualify with one of the following: Be entitled to Supplementary Security Income (SSI); Be entitled to Social Security Disability Income (SSDI); or File a disability certification with the IRS.


How much can I save in an ABLE account?

The annual contribution limit to a beneficiary's single ABLE account, from all sources, is $14,000. The account may accept gifts from other people. Amounts contributed in excess will be returned. Account maximum limit is the same as the 529 college savings limit in the state where the account is issued, which will vary.


How much will ABLE accounts cost?

Account fees and expenses are unknown at this time. Due to startup costs and lower participation at the outset, participant fees will likely be higher than college savings plans. Investors are encouraged to compare investment expenses, sales commissions, initial and annual account fees, along with transaction charges for transfers and withdrawals. Taxes may apply to withdrawals for nonqualified expenses.


What are the qualified expenses permitted by the ABLE accounts?

While not a complete list, the federal ABLE regulations so far include expenses that are a result of living with a disability. They include: Education, Housing (SSI benefits may be affected); Transportation, Employment Support; Health Support and Wellness; Assistive Technology and Personal Support;  Miscellaneous and other expenses the federal government approves.


Will I lose my Medicaid or SSI benefits if I open an ABLE account?

No for Medicaid -- ABLE does not affect Medicaid eligibility. SSI benefits will be suspended if the ABLE account balance surpasses $100,000, a greater amount than the $2,000 allowed outside of ABLE accounts.


Can an individual work with a disability and maintain an ABLE account?

Yes, as long as the individual meets the eligibility requirements for an account.


Can an employed individual contribute to an ABLE account with wages he/she as earned?

Yes. After required taxes are paid, wages earned can be contributed, but only up to the maximum $14,000 yearly contribution limit.


Can I transfer money from a 529 college savings account or an IRA account to an ABLE account?

No. Because these accounts are set up under different tax rules, a direct transfer is not possible without first converting the other account to cash and paying any taxes or penalties due prior to making an ABLE contribution.


How and when can I set up an ABLE account?

It is likely that some states will be able to offer ABLE accounts before the end of 2016, and some in 2017. These states are working to coordinate the regulatory, operational, programmatic, and investment option issues required to begin offering an ABLE plan.  States will need to submit detailed monthly reports to Social Security and there are other requirements that will make ABLE account administration more complex than that required for current college savings plans.


The efforts by organizations representing children with disabilities, along with many others across the country, are acknowledged. ABLE has been their goal for many years, and will become a reality in the near future.



(+) External Link - Browser opens in a new window.