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Winter 2020 Lasting Legacy header

A Look at ABLE Accounts

When Denise Gehringer talked with friends early on about plans for her son, Jacob, who has Down syndrome, she often heard the same refrain.

When Denise Gehringer talked with friends early on about plans for her son, Jacob, who has Down syndrome, she often heard the same refrain.

“From the day Jake was born, people said, ‘Don’t save anything in his name,’” Gehringer recently recalled. They told her that if someone with a disability had more than $2,000 in cash or other resources, the person might not be able to qualify for certain government benefit programs, such as payments from the federal Supplemental Security Income (SSI) program and home and community-based services from the joint federal-state Medicaid program.

So, whenever Jake received cash, checks, or other such gifts—on his birthday, for example—the money typically was spent, not saved, she recalled.

Today, the picture is different. Jake, now 24, is the owner of an Achieving a Better Life Experience (ABLE) account. It’s a special type of savings account intended to help individuals with disabilities pay for disability-related expenses—and it does not count against the individual’s qualifying for government benefit programs.

Congress approved legislation in 2014 creating ABLE accounts “to encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life,” according to the bill.

The bill was also intended to “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance” as well as through Medicaid, SSI, the beneficiary’s employment, and other sources.

The federal law allowed states to establish their own ABLE programs. The first, in Ohio, launched in 2016. As of November 2019, 42 states and the District of Columbia have ABLE account programs, said Miranda Kennedy, director of the ABLE National Resource Center, which was founded and is managed by the National Disability Institute in Washington, DC, and serves as an independent clearinghouse for information on ABLE accounts.

“Having a disability is expensive,” Kennedy said. The ABLE account “gives people with disabilities who need public benefits the chance to get out of a life of poverty, to be able to save and grow their money” without jeopardizing those benefits, she said.

Account Basics

An account can be opened online, usually for a minimum initial investment of $25 or less. Anyone can contribute, including family members, friends, and the account owner. 

The person with the disability is the account owner—the designated beneficiary—although a parent or other authorized person can have signature authority over an account established on someone’s behalf, such as a minor. 

Investment options, which vary by state, are typically pretty conservative and often include not only mutual funds, but also savings and checking accounts backed by the Federal Deposit Insurance Corporation (FDIC), said Stephen Dale, an attorney at The Dale Law Firm, PC, in Pacheco, California, a disability-rights advocate whose law practice works with families that have members with disabilities, focusing mainly on special needs trusts.

Contributions are not federally tax-deductible, but money invested in an ABLE account grows on a tax-deferred basis. Thus, interest, dividends, and capital gains earned inside the account are shielded from federal income tax.

Withdrawals escape tax if used for the disabled person’s needs. The list of what counts for tax-free treatment includes expenses for education, housing, transportation, employment training and support, assistive technology, personal support services, health, prevention and wellness, financial management, administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses, according to Internal Revenue Service Publication 907 (“Tax Highlights for Persons with Disabilities”).

Although some programs in some states require the account owner to be a resident of that state, programs in a majority of states are open to residents and nonresidents alike, Kennedy said. 

The ABLE National Resource Center website has a tool to compare all of the available programs, summarizing features such as tax breaks for in-state residents, investment options, and debit cards or checking accounts for withdrawals: www.ablenrc.org.

Congress has made some changes to the law since its enactment. Under one of the changes, some funds now may be rolled into an ABLE account penalty-free from the designated beneficiary’s own Section 529 college-savings plan.


ABLE accounts have limits. For example, you’re eligible to open an account only if you have a significant disability (generally based on Social Security Administration rules) and the disabling condition arose before you turned 26 (even if you’re now older than that). 

If you clear that hurdle, and you’re already receiving benefits under SSI or Supplemental Security Disability Insurance (SSDI), you’re automatically eligible to open an account. If you’re not receiving either benefit but otherwise meet the guidelines, you can still open an account if you obtain a letter of certification from a licensed physician, Kennedy said.

A designated beneficiary can have only one ABLE account, and contributions from all sources are generally limited to $15,000 a year in the aggregate. The limit can increase annually with inflation. Also, an ABLE account owner who has a job generally can contribute an additional sum, within limits, from his or her work earnings.

There’s also an overall cap on the amount that an ABLE account can hold. For California’s program, for example, the cumulative balance limit is $529,000; for North Carolina’s, it’s $450,000, according to the ABLE National Resource Center’s state-by-state summary.

In addition, although amounts in an ABLE account—and withdrawals used for qualified expenses—are typically disregarded for purposes of Medicaid or certain other government benefit programs, if the account balance exceeds $100,000, the person’s SSI benefit will be suspended until the account balance falls beneath the threshold. 

As of June 2019, there were 51,000 ABLE accounts with $292 million in assets under management—even though an estimated eight million people are potentially eligible for the accounts, Kennedy said. “People are certainly learning about [the accounts], but there’s a lot of fear” that the rules could change regarding eligibility for benefits programs, Gehringer said.

Special Needs Trust

Another option is the special needs trust, in part because it can accept and hold significantly larger sums; there’s no annual contribution limit and no limit on the accumulated balance, Dale said. The trusts come with their own requirements, as well as legal costs and other matters, including the appointment of a trustee.

A number of families with whom Dale works have individuals with cognitive challenges, such as autism, schizophrenia, or traumatic brain injury. Often in such situations, “families are looking for some sort of oversight,” and a special needs trust may be more appropriate because they offer more control, he said. 

Compared with special needs trusts, ABLE accounts are especially useful for making housing payments for the beneficiary, feature less scrutiny overall when it comes to distributions, provide more autonomy to the beneficiary, and offer the opportunity for the beneficiary to learn financial literacy, Dale said. 

But ABLE accounts and special needs trusts aren’t mutually exclusive. “You can have one or the other—or both,” Kennedy said. For a number of families, “The ABLE account is not so much a savings account as a distribution vehicle,” Dale said. For example, the trust can supply a limited amount of funds to the ABLE account, giving the beneficiary the chance to spend a portion of the money with some autonomy. “If there’s a problem, we can cut it off,” Dale said.

Jake Gehringer currently lives with his mother, 52, who is executive director of an organization that builds apartment communities for individuals with intellectual disabilities, and his father, Jeff, 53, a computer specialist, in Papillion, Nebraska. Jake contributes to his own account, mainly out of his earnings from a part-time job as an office assistant at a local learning center. His long-term goal is to live independently in his own apartment. The money that the family saves in his ABLE account will eventually be used to help pay for furniture, housewares, and other items he’ll need when he moves, his mother said. “The ABLE account is a great tool for him so he can save up for things that are more expensive,” she said. The account also means “having savings for him when we’re no longer here to help him,” she said.