ABLE Accounts Explained! (Should You Open One?)

What is an ABLE Account?

An ABLE account is a tax-free, savings and investment account available to certain individuals diagnosed with a qualifying disability before the age of 26. ABLE accounts are similar to a 529 college savings plan in that earnings used for a specified category are tax-free. The federal tax code allows for ABLE accounts. However, it’s up to each state to set up and administer the program. 

Congress authorized ABLE accounts in the Achieving a Better Life Experience Act of 2014. Before that parents of people with disabilities didn’t have a specific way to save for their children’s future needs, such as occupational therapy.  ABLE accounts are easy to open and there are now over 20 different ABLE accounts to choose from. 

Who is eligible for an ABLE account?

To be eligible for an ABLE account, you need to have developed a qualifying disability before age 26. There is no income limit to be eligible to contribute to an ABLE account.

The beneficiary must also meet one of the following: 

• Have a Compassionate Allowance Condition: There is a list of conditions that are published by the Social Security Administration (SSA).
• Self-certify: The beneficiary can self-certify their disability with a signed diagnosis from a licensed physician. 
• SSI or Social Security Disability Insurance: If you are already receiving benefits from SSI or Social Security Disability Insurance (and your disability started before age 26) then you are automatically eligible to open an ABLE account.

Congress is considering legislation extending the age of the disability onset from 26 to 46. This would likely double the number of people who qualify for an ABLE account.

ABLE Account Contribution Limits 2022

The contribution limit for ABLE accounts in 2022 is $16,000. That’s an increase of $1,000 from 2021.

Owners who work and who do not have access to an employer-sponsored retirement plan can contribute more than the $16,000 limit in 2022. They can contribute up to a maximum of $28,880 in 2022 without impacting their government benefits if they will make at least $12,880 in earnings. This benefit (called ABLE to Work) is set to expire at the end of 2025.

Who Can Contribute to an ABLE Account?

The ABLE account can be funded by anyone. This includes family members, friends, and the individual with a disability. However, the amount cannot exceed $16,000 in total for one year.