What is ABLE? Understanding ABLE accounts for individuals with disabilities

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Achieving a better life experience.

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If you or someone you know has a disability, then you may have heard about ABLE, the Achieving a Better Life Experience (ABLE) Act. It was signed into law in 2014 to increase the financial security and tax benefits afforded to people with disabilities.

ABLE helps beneficiaries to pay for disability-related expenses, and it can be particularly beneficial because it doesn’t prevent eligible participants from receiving public benefits like Medicaid.

ABLE is short for the Stephen Beck Jr., Achieving a Better Life Experience Act. The legislation enables the creation of state-level ABLE programs and ABLE accounts—tax-advantaged savings vehicles designed to help individuals with disabilities and their families to save for disability-related expenses. Money in an ABLE account may be invested in a variety of investment vehicles, such as mutual funds and exchange-traded funds (ETFs).

The ABLE Act was passed by Congress and signed into law by President Barack Obama on December 19, 2014. Although it was enacted as federal legislation, the ABLE Act authorizes U.S. states to create ABLE programs. States began rolling out ABLE programs in 2016, and by early 2024, 46 states and the District of Columbia were operating ABLE programs.

The premise of ABLE is simple: Individuals with disabilities should not be forced to choose between saving money for disability-related expenses and receiving essential public benefits. Before the ABLE Act, eligibility for Medicaid and Supplemental Security Income (SSI) was contingent on the value of recipients’ assets not exceeding set limits.

Although each state can customize its ABLE program, the law defines many of the plan’s key features.

Disability certification. Establishing an ABLE account requires you to provide documentation of disability for the beneficiary of the account. (That may be yourself, or someone for whom you have legal guardianship.) If the beneficiary is already entitled to receive SSI or Social Security Disability Insurance (SSDI) because of their disability, that’s the only proof of disability you need for an ABLE account.

If the intended beneficiary of an ABLE account is not receiving SSI or SSDI benefits, then a written diagnosis from a licensed physician is needed to establish eligibility. The physician must confirm that the individual has a physical or mental impairment that results in “marked and severe” functional limitations and can be expected to last (or has lasted) for a continuous period of not less than 12 months or result in death.

Age criteria. Eligibility for an ABLE account depends upon the age of the beneficiary at the time of the disability’s onset. When the ABLE Act was passed, the maximum age was 26, but the ABLE Age Adjustment Act (signed into law in 2022) amended the law to raise the maximum age limit. Starting in 2026, it rises to 46.

If you have a qualifying disability but are older than the maximum age, you may still qualify for an ABLE account. You’ll need to provide sufficient documentation to demonstrate that the onset of your disability occurred before you reached the age limit.

Annual contribution limits. The annual contribution is capped for each ABLE account. For unemployed program participants, the maximum dollar amount is typically the same amount as can be excluded from taxation under federal gift tax rules: $17,000 for the 2023 tax year and $18,000 for 2024. Contribution limits for beneficiaries who are employed may be higher—up to the lesser of your annual income or the federally determined poverty line for your state. The additional contribution limits are:

2023

2024

Contribution sources. Annual contribution limits apply regardless of the source of funds. Contributions may come from the beneficiary directly or from family members, friends, an investment trust, estate, partnership, association, company, or even a corporation. The Internal Revenue Service (IRS) defines all of these entities as “individuals” for tax and ABLE account contribution purposes.

ABLE accounts may also be funded by rollovers from 529 college savings plans. Just keep in mind that 529 rollovers are still subject to the same annual ABLE contribution limits.

Qualifying expenses. The key to effectively using and managing funds in an ABLE account is knowing what they can be spent on. Qualified disability expenses (QDEs) include costs in numerous categories:

Funds in ABLE accounts can be used for many purposes, but you’ll want to keep receipts to document expenses. If you spend money from an ABLE account on nonqualified costs, you may incur a 10% penalty and must pay federal income tax on the nonqualifying amount.

Eligibility for tax benefits. Contributing to an ABLE account doesn’t reduce your federal tax liability, although your state’s ABLE program may offer a contribution-based tax incentive. The invested funds in an ABLE account can grow tax free as long as they’re used for qualified purposes. Distributions from an ABLE account—those used for QDEs—are not classified as taxable income.

Eligibility for public benefits. Establishing an ABLE account typically has a minimal effect on the beneficiary’s eligibility for federal public benefits, although there are some limitations.

To begin benefiting from the ABLE program, you’ll need to take several steps to open an ABLE account:

ABLE is more than a federal law; it represents an important shift toward financial independence for individuals with disabilities. Although the ABLE Act contains its share of restrictions and requirements, the ability to create and fund an ABLE account is pivotal for those who previously worried about gaining wealth but losing means-based federal funding.

ABLE programs will benefit even more individuals starting in 2026, when the maximum age for the onset of a disability rises to 46, providing a much-needed boost to their financial security.