Pevita Pearce
By David Colgren.
A tax-advantaged savings vehicle designed to support individuals with disabilities, akin to the well-established Section 529 plans for education, is undergoing significant enhancements that will broaden its accessibility and utility. Achieving a Better Life Experience (ABLE) accounts offer a pathway to fund qualified disability expenses for eligible beneficiaries. Recent legislative actions, including the SECURE 2.0 Act enacted in 2022 and the One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, are poised to expand eligibility and solidify key benefits of these accounts. These changes, particularly the eligibility expansion effective January 1, 2026, represent a crucial development for individuals with disabilities and their families seeking financial security and independence.
The Evolving Landscape of ABLE Accounts
ABLE accounts were established by the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014, a legislative response to the limitations faced by individuals with disabilities and their families in saving for long-term expenses without jeopardizing essential government benefits. Prior to ABLE accounts, accumulating savings beyond a certain threshold, often as low as $2,000, could disqualify individuals from critical support programs like Supplemental Security Income (SSI) and Medicaid. ABLE accounts provide a crucial mechanism to circumvent these resource limitations, allowing for tax-advantaged growth and tax-free withdrawals for qualified disability expenses.
The SECURE 2.0 Act, a comprehensive piece of retirement security legislation, introduced a pivotal change by raising the age of onset for disability for ABLE account eligibility. Previously, an individual had to have acquired their disability before the age of 26 to qualify. The SECURE 2.0 Act increased this threshold to age 46, a change set to take effect on January 1, 2026. This expansion is projected to open the doors to ABLE accounts for a significantly larger population of individuals who acquired disabilities later in life.
Further solidifying the advantages of ABLE accounts, the One Big Beautiful Bill Act (OBBBA), enacted in mid-2025, has made several key enhancements permanent. These legislative actions underscore a growing bipartisan commitment to supporting individuals with disabilities and promoting their financial well-being and independence.
Key Benefits and Financial Advantages
ABLE accounts offer a multi-faceted approach to financial planning for individuals with disabilities. They can be established by the eligible individual themselves, by a parent or legal guardian on behalf of a minor or incapacitated individual, or by any family member or friend who wishes to contribute to the beneficiary’s support. This broad accessibility ensures that a wide network of support can contribute to the account.
A significant benefit made permanent by the OBBBA is the ability for the designated beneficiary to claim the saver’s credit for their own contributions to an ABLE account. This credit is a valuable incentive for individuals with disabilities to actively participate in saving for their future. For the tax years 2025 and 2026, the maximum saver’s credit available to an individual is $1,000, providing a direct financial return on their savings efforts.
While contributions to an ABLE account are not tax-deductible at the federal level (though some states may offer state-level deductions), the funds invested within the account benefit from tax-deferred growth. This means that any earnings generated by the investments are not taxed annually, allowing for greater compounding over time. Crucially, when funds are withdrawn and used to pay for qualified disability expenses, these distributions are entirely tax-free. This dual benefit of tax-deferred growth and tax-free withdrawals for qualified expenses provides a powerful tool for long-term financial planning.
It is important to note the distinction regarding nonqualified expenses. If funds are withdrawn for purposes not deemed eligible by the ABLE program, the portion of the distribution representing earnings will be subject to ordinary income tax, along with an additional 10% penalty. This reinforces the importance of understanding and adhering to the guidelines for qualified expenses.
Impact on Government Benefits
One of the most significant advantages of ABLE accounts is their limited impact on an individual’s eligibility for essential government benefits. For most federal and state benefit programs, ABLE account balances generally do not count towards asset limits, preventing individuals from losing vital support due to their savings. This includes Social Security Disability Insurance (SSDI) payments and Medicaid eligibility, programs that are critical for many individuals with disabilities.
However, there is a notable exception concerning the Supplemental Security Income (SSI) program. SSI has a stringent individual resource limit, typically set at $2,000 for individuals. ABLE account balances exceeding $100,000 are counted towards this SSI resource limit. Consequently, if an ABLE account balance, combined with other assets, surpasses the SSI limit, the beneficiary’s SSI benefits will be suspended. As of the latest data, this suspension typically occurs when an ABLE account balance reaches approximately $102,000, assuming the individual has no other countable assets. It is crucial to understand that this is a suspension, not a termination, of benefits, meaning that SSI can be reinstated once the account balance falls below the threshold.
Furthermore, distributions from an ABLE account that are used to pay for housing expenses are considered income for SSI purposes and can therefore affect SSI benefit amounts. This highlights the need for careful planning and consultation with financial advisors or benefits counselors when making housing-related expenditures from an ABLE account.
Expanded Eligibility Criteria
The eligibility criteria for opening an ABLE account are central to understanding its reach. To qualify, an individual must be diagnosed with a disability or blindness. The key change introduced by the SECURE 2.0 Act, effective January 1, 2026, is the expansion of the age of onset for this disability. Previously, the disability must have been present before the individual turned 26. The new legislation extends this to individuals whose disability or blindness occurred before their 46th birthday. This single change is expected to unlock access to ABLE accounts for hundreds of thousands of individuals who were previously ineligible due to the age of disability onset.
Beyond the age of onset, eligibility is generally established by demonstrating entitlement to benefits under the SSI or SSDI programs. This provides a clear pathway for individuals already receiving these critical supports. Alternatively, individuals who do not qualify for SSI or SSDI can still become eligible for an ABLE account if a disability certification is filed with the Internal Revenue Service (IRS). This certification process allows individuals with documented disabilities, even if they have not qualified for federal benefits, to access the advantages of ABLE savings.
Defining Qualified Expenses
The utility of an ABLE account is directly tied to the definition of qualified disability expenses. These are broadly defined as any expenses incurred that maintain or improve the health, independence, or quality of life of the designated beneficiary. This encompasses a wide array of needs, including:
- Housing: Expenses related to rent, mortgage payments, home modifications (such as ramps or accessible bathrooms), utilities, and property taxes.
- Transportation: Costs associated with purchasing or modifying a vehicle, public transportation fares, and adaptive driving equipment.
- Education: Tuition, fees, books, and supplies for post-secondary education, vocational training, and other educational programs.
- Employment Support: Expenses related to job coaching, assistive technology for the workplace, and work-related transportation.
- Assistive Technology and Personal Support Services: Costs for devices and services that enhance independence, such as communication aids, specialized computer equipment, and personal care assistants.
- Health and Wellness: Medical expenses not covered by insurance, therapy services, nutrition programs, and wellness activities.
- Financial Management: Fees for financial planning services or assistance with managing the ABLE account itself.
- Legal and other Support Services: Costs for legal advocacy, guardianship services, and other supports that promote independence.
- Daily Living Expenses: Food, clothing, and other essential needs that contribute to the beneficiary’s well-being.
The broad interpretation of qualified expenses underscores the intention of ABLE accounts to provide comprehensive financial support for individuals with disabilities, enabling them to live more fulfilling and independent lives.
Establishing and Managing an ABLE Account
Similar to Section 529 college savings plans, ABLE accounts are established and administered through state-sponsored programs. Individuals are not limited to opening an account under the program of the state in which they reside; they can choose any state’s ABLE program, provided that state permits out-of-state participants. This competitive landscape allows individuals to compare investment options, fee structures, and plan features to find the best fit for their needs.
The funds within an ABLE account can be invested in a variety of options, typically including mutual funds, exchange-traded funds (ETFs), and stable value funds, offering different risk and return profiles. Account holders generally have the flexibility to change their investment directions up to twice a year, allowing them to adapt their investment strategy as their circumstances evolve.
There are a few key limitations to be aware of when establishing and contributing to an ABLE account:
- One Account Per Beneficiary: An eligible individual can only have one ABLE account.
- Annual Contribution Limits: For 2025, the annual contribution limit is $19,000, and for 2026, it is $20,000. These limits are subject to change by the IRS annually.
- 529 Plan Rollovers: The OBBBA made permanent the ability to roll over funds from a 529 college savings plan to an ABLE account without penalty. This is a significant benefit for families who may have saved for education but now need to redirect those funds to support a disability. However, this rollover is only permitted if the ABLE account beneficiary is the same as the 529 plan beneficiary or a member of their family. Rolled-over amounts count towards the annual contribution limit.
- Earned Income Contributions: A unique provision allows beneficiaries who are employed to contribute a portion, or all, of their earned income to their ABLE account, in addition to the standard annual contribution limit. This additional contribution is capped at the federal poverty line for a one-person household. This provision is designed to encourage employment and financial independence among individuals with disabilities.
A New Horizon for Savings and Independence
The upcoming expansion of ABLE account eligibility, particularly the increase in the age of onset for disabilities, represents a significant new opportunity for individuals and families who have historically been excluded from these tax-advantaged savings vehicles. For those who acquired a disability or blindness after their 26th birthday but before their 46th birthday, the ability to establish an ABLE account starting in 2026 offers a crucial pathway to secure their financial future, enhance their independence, and improve their overall quality of life.
The legislative momentum behind ABLE accounts, evidenced by the SECURE 2.0 Act and the OBBBA, signals a growing recognition of the importance of robust financial planning tools for individuals with disabilities. As these changes are implemented, it is advisable for individuals and their families to consult with financial advisors, tax professionals, and benefits counselors to fully understand how ABLE accounts can best serve their unique circumstances and financial goals. The expanded accessibility and solidified benefits of ABLE accounts are poised to make a profound positive impact on the lives of many Americans with disabilities.
