ABLE Accounts for the Disabled

by Steve Goodman

CPA, MBA – President & Chief Executive Officer

Contact Steve today for more info.

Congress passed the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014, commonly known as the ABLE Act, to simplify the process of providing money to improve the lives of the disabled. 529 education savings accounts served as the pattern for the ABLE accounts. With the passage of the ABLE Act, Congress finally recognized as a matter of public policy that there are extra living costs incurred by the disabled and the disabled’s family. The ABLE Act is Congress’ effort to make the benefits accorded Special Needs Trust beneficiaries affordable to more disabled Americans.

Qualifying for an ABLE Account

To qualify for an ABLE account, one must have incurred the disability before their 26th birthday. A person can establish an account at a later age, but only if the disability began before age 26. If one meets the age criteria and was an SSI or SSDI recipient before age 26, then one can immediately apply to open an ABLE account.

Those who meet the age requirement but are not existing SSI or SSDI recipients must show that they meet Social Security’s definition of disabled. They must also receive certification from a doctor concerning their condition. The doctor must certify that physical or mental impairment is medically provable, results in severe limits of functioning, and is expected to last at least a year or result in death.

The Accounts

An ABLE Account allows donors to contribute up to the annual gift exclusion amount each year to the account. For 2018, the amount is $15,000 from all sources combined. Accounts with $100,000 or less will not affect a beneficiary’s access to SSI. SSI, but not Medicaid, is subject to suspension if an account exceeds $100,000. Most states impose a lifetime maximum contribution of $300,000 or more, in keeping with their 529 regulations.

Individual states manage ABLE accounts. Roughly 30 states currently offer these programs. Most, but not all, states accept out of state accounts.

When the account beneficiary dies, Medicaid claims all remaining funds to pay back for care provided over the beneficiary’s lifetime. There are rarely excess funds after satisfying this requirement. As of early 2018, only California, Oregon, and Pennsylvania do not require Medicaid to pay back.

The account beneficiary is the owner of the account. If he/she is incapable, a parent or other person may have power of attorney to administer the account. There is no trustee needed to manage the account.

A beneficiary can have a Special Needs Trust and an ABLE account concurrently.


Donations to an ABLE account utilize after-tax dollars for federal tax purposes. Some states allow a deduction for state tax purposes. Like a 529 account, the states offer a limited number of investment options for the funds in the account. Regulations permit no more than two investment changes per year. All dividends or investment gains in the account are tax-free. The account does not require an annual tax filing.

Allowable Expenses

The ABLE Account is almost as flexible as a Special Needs Trust when deciding allowable expenses. Additionally, there are timing rules about matching withdrawals and the dates on certain expenses, especially in housing-related expenses.

Distributions may legally be made from an ABLE account to cover the ‘qualified, disability-related expenses (QDE)’ including the following:

  • Health care, including assistive technology and personal support services (includes home health aides)
  • Housing
  • Transportation
  • Employment Training
  • Education
  • Financial Management
  • Basic Living Expenses

Withdrawals for non-qualified expenses are taxed as income with a 10% tax penalty.

Distributions for food and housing do not count as income as they do for Special Needs Trusts (SNT’s). Housing-related distributions must be spent in the month the withdrawal is made.

How Do ABLE Accounts Compare to Special Needs Trusts?

  1. Funding – SNT’s do not have lifetime or annual limits. ABLE accounts are limited in terms of annual contribution ($15,000 in 2018), total contributions (generally match 529 accounts in each state), and annual balances (amounts over $100,000 result in suspended SSI payments).
  2. Uses of Funds – Both allow for a wide range of allowable expenses. A well-crafted trust document can provide access to more expense categories than allowed under ABLE regulations
  3. Tax Efficiency – Any money earned by an SNT and not paid out in the same calendar year is subject to trust tax rates. Earnings from an ABLE account are tax-free providing they are eventually spent on qualifying expenses.
  4. Legacy for Future Beneficiaries – With the exception of those few states with no payback requirement, most states will absorb the remaining funds upon account termination to repay for Medicaid services. Remaining third-party SNT funds are passed along to the trust’s beneficiaries upon termination of the trust.
  5. Cost and Complexity – Trusts are complex and expensive. ABLE accounts are no more complex than 529 accounts for the average account holder. SNT’s require annual tax filings. ABLE accounts do not.

CPA, MBA – President & Chief Executive Officer

About Steve Goodman

For more than 30 years, Steven has provided insightful solutions to the challenges of business succession, wealth preservation and charitable planning, focusing on the needs of owners of closely held businesses and high net worth individuals.

He's been featured in the New York Times and is an accomplished speaker and has presented over the years to many organizations and professional groups on efficient business succession, estate planning issues and tax strategies. Steven is a CPA who was vice president of the Trust and Investment Division of JP Morgan Chase and a supervisor for KPMG Peat Marwick, and holds an MBA from Fordham University.

Email Steve today for the business succession planning you deserve.

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