The Achieving a Better Life Experience (ABLE) Act allowed accounts to help people with disabilities (and their families) save and pay for disability-related expenses. ABLE allows states to create tax-advantaged savings programs for eligible people with disabilities. Distributions from ABLE accounts are tax-free if used for qualifying disability expenses.
ABLE accounts may be used by those who were disabled before age 26. Regulations issued in 2020 allow such individuals to roll money from qualified tuition programs — 529 plans — into ABLE accounts.
Contributions aren’t federally tax-deductible. However, distributions and earnings are tax-free to the beneficiary if they are used to pay such qualifying disability expenses as:
- Employment training and support
- Assistive technology
- Personal support services.
In addition to the annual contribution limit of $15,000, a designated beneficiary who works also may contribute his or her compensation up to the federal poverty level for a one-person household (but not if his or her employer contributed to a 401(a) defined contribution plan, 403(b) annuity contract, or 457(b) eligible deferred compensation plan). In 2021that’s $12,880 (except for Alaska and Hawaii).
Amounts in ABLE accounts aren’t considered “available resources” for Medicaid purposes. Further, amounts up to $100,000 are ignored for purposes of Supplemental Security Income (SSI). This is critically important. It allows the disabled beneficiary to have some resources without jeopardizing their benefits. Can you imagine if you could only have $2,000 to your name without being penalized? Without an ABLE account, that would be the terrible position such individuals would be in.
An ABLE account allows for dignity for the disabled beneficiary, in addition to the many other benefits available. The question isn’t whether a disabled beneficiary should have a SNT for their benefit or whether they should have an ABLE account. The question is why shouldn’t they have both? An ABLE account is a nice supplement to a SNT.