Useful applications for ABLE accounts

The topic of ABLE (Achieving a Better Life Experience) accounts has come up recently with several client families.  Here is a quick refresher on the basics of ABLE.

• A person is eligible to open and use an ABLE account if her/his disability meets the Social Security definition, whether or not s/he has filed for or is receiving Social Security disability benefits and the disability started before s/he turned 46.

• A person can only have one ABLE account.

• The basic annual contribution limit for an ABLE account is $20,000 for 2026.  This limit generally tracks the annual gift-tax-exclusion amount.  The limit applies to contributions by the account owner and any other contributor.

• However, following the extension of the ABLE to Work Act, workers with disabilities may contribute an additional amount that is the lesser of the current year’s Federal Poverty Level or the entirety of their earned income as long as they are not contributing to an employer-sponsored retirement plan such as a 401(k) and their employer is not contributing on their behalf.

• An account holder can have up to $100,000 in their ABLE account and still maintain eligibility for SSI. 

• Funds in an ABLE account never count for Medicaid eligibility.

• Funds in an ABLE, including investment earnings, may be withdrawn tax-free to cover Qualified Disability Expenses.

• ABLE accounts may be subject to Medicaid estate recovery upon the death of the owner.  Each state has taken an individual approach to this, with some states relinquishing the right.

• Detailed information about ABLE is available here: ablenrc.org

While ABLE accounts can be broadly useful to many people with disabilities, they are particularly useful in certain situations.  Among these are:

Covering  housing expenses for a person receiving SSI

John and Jane have an adult son, James, who has a developmental disability.  James lives in a residential complex that provides supportive living to adults with intellectual and developmental disabilities.  Each resident has her/his own apartment.  The residence also offers a fall dining room with flexible meal plans, amenities such as a fitness room, swimming pool and computer lab, as well as planned activities and transportation back and forth in the community.  James works part-time at a nearby hardware store.  He receives some SSI.  Due to the level of amenities, the rent on James’ unit is more than he can afford from his work earnings and SSI.  However, John and Jane are able to subsidize the rent.  If John and Jane give money to James directly, his SSI will be reduced for “In-kind Support and Maintenance”.  If, instead, John and Jane deposit money into James’ ABLE account and James’ then withdraws the money to pay his rent, his SSI will not be reduced.

Repositioning a small inheritance for a person receiving SSI

Lisa has an intellectual disability and receives SSI.  Lisa lives with her widowed mother, who both works and provides support to Lisa.  Lisa’ SSI is a necessary component to balance the small family’s budget.  Lisa’s well-meaning uncle also included her in his will.  When the uncle dies  unexpectedly from a heart attack, Lisa inherits $18,000.  Lisa’s mother quickly assists Lisa to open an ABLE account, and they deposit the $18,000 in the account before the end of the month.  The $18,000 does count as unearned income to Lisa in the month that she receives it and she is ineligible for SSI during that month. However, Lisa’s mother’s quick action prevents the inheritance from being counted as a financial resource in subsequent months and Lisa regains her SSI eligibility starting in the next month.

Saving funds for a disabled student who will apply for financial aid

Gene is an elementary school student with intellectual disability.  Gene’s parents, Mark and Melissa, believe that Gene will benefit from attending an Inclusive Post-Secondary Education Program for students with intellectual disabilities.  Mark and Melissa know that among these programs, some are certified so that students can complete a FAFSA and receive Federal Financial Aid.  If they save money for this purpose in a savings account, brokerage account, or even in a 529 college savings account, the money will be considered in Gene’s FAFASA calculation.  Funds held in an able are not considered an available resource of either the parents or the student and distributions from an ABLE are not considered income to the student for the purposes of FAFSA calculations. 

Maintaining Medicaid and Medicaid Waiver eligibility

Elise, who has physical and developmental disabilities, currently lives with her parents, Amy and Pete, who are older parents.  By the time Elise completed her school district’s transition program, Pete had reached his full retirement age, retired from his employment, and then filed for Social Security.  Amy receives a “Disabled Adut Child” benefit based on Pete’s Social Security record.  Pete acts as a personal support worker for Elise, assisting her with certain activities of daily living as well as providing transportation to and from community activities and medical appointments.  Pete is paid for this work through his state’s Medicaid Waiver, which requires that Elise be eligible for Medicaid.  To maintain her eligibility, Elise must keep her financial resources below a certain threshold.  Since ABLE is an excluded resource for purposes of Medicaid eligibility, Elise deposits any end-of-the month surplus from her DAC benefits into her ABLE account.

Funding retirement for people receiving SSI or using Medicaid or Medicaid Waivers

Chloe, who has a developmental disability, works part-time and also receives some SSI.  Chloe shares an apartment with her sister, Angela, who is studying to be a Social Worker and also their brother, Mark, who is studying to be an occupational therapist.  Angela and Mark act as Chloe’s personal-support workers and are paid for this work through their state’s Medicaid Waiver.  Chloe’s employer has offered her the opportunity to enroll in the company’s 401(k) and explained the advantage of the company match.  Chloe would like to save money and benefit from the employer match, but under her category of Medicaid eligibility, retirement accounts are considered “countable resources”.  If she accumulates “too much” in a retirement account, it will jeopardize her SSI, her Medicaid and her Medicaid Waiver support services.  With support from her siblings, Chloe explains to her employer that the company can make regular contributions to her ABLE account in lieu of providing a 401(k) match.

Joey, who also has a disability and works for the same employer, hears about this.  Joey is using his state’s Medicaid for Workers with Disabilities and Medicaid Waiver-funded support.  Joey has been contributing to his 401(k) and also received the employer match.  Under his current category of Medicaid eligibility, retirement assets are excluded from the criteria; however, as soon as he retires, they will become countable resources and jeopardize his Medicaid eligibility at that point.  Because Joey meets the IRS definition of “permanently and totally disabled”, he is able to divest the funds in his 401(k) without paying a penalty for withdrawing them before he reaches 59 and a half.  Joey pays income tax on the accumulated investment growth and then deposits the rest of the funds into his new ABLE account.  Then, Joey requests that his employer contribute further matching funds to the ABLE.

“Achieving a Better Life Experience” is a worthy name for these accounts, which allow people with disabilities to save and invest funds for their future.  ABLE can be especially useful in situations like those described above.