Living with a disability can be very expensive. Medical costs, equipment, additional services and programs all add up. The Achieving a Better Life Experience (ABLE) Act recognizes the financial strains of living with a disability and allows individual states to create tax-advantaged savings programs for qualifying individuals with disabilities.
ABLE accounts protect eligibility for critical programs, including Medicaid and Supplemental Security Income (SSI). Earnings on the account are tax-free if funds are used for qualified disability expenses.
Save more in 2022
The annual contribution limit for ABLE accounts has been adjusted for inflation for the first time in four years. The account limit now caps contributions at a maximum $16,000 annually, up from $15,000 in 2017 through 2021.
Here’s what you need to know about ABLE accounts to help you determine whether an ABLE account is right for you or your loved one:
- Eligible individuals must be U.S. citizens or legal residents who developed the onset of their qualifying disability before the age of 26.
- Intellectual and developmental disabilities may qualify an individual for an ABLE account. Here’s a list of qualifying compassionate allowances from the Social Security Administration.
- Individuals are allowed only one ABLE account.
- All ABLE account earnings (such as interest or investment returns) remain untaxed if account funds are used for qualified disability expenses.
- Qualified disability expenses include such things as health and wellness, education and training, housing, basic living expenses, assistive technology, and legal expenses.
- Family and friends can contribute to someone’s ABLE account up to the federal gift tax limit, which is now, in 2022, $16,000.
- People with disabilities who work and do not contribute to an employer-based savings plan such as a 401(k) or 403(b) program may be allowed to contribute additional funds to an ABLE account each year.
- An ABLE account can be used instead of, or together with, a supplemental needs trust to maintain a beneficiary’s eligibility for SSI.
- The Able account holder is not limited to their state’s account. Various types of ABLE accounts are offered by different states and individuals can choose the account that works best for them.
An ABLE account can be a great way to save for unexpected expenses and empower individuals with disabilities to save for their dreams. As is typical with financial programs, there are many details and benefits associated with an ABLE account.
You should consider speaking with your tax or investment professional when assessing whether an ABLE account will meet your needs. Financial Services offered by AbleLight may also offer insight and guidance to help you make an informed decision.