ABLE Accounts

If you have a disability and your disability began before you turned 26, you can open an ABLE account. An ABLE account is a financial account that can help you:

  • Build assets in an account that has tax advantages. Your investments in an ABLE account won’t be taxed, so your wealth will grow faster. Plus, If you work and save earned income in your ABLE account, you may qualify for the federal Saver’s Credit.
  • Use your savings on many types of expenses. There are rules about spending the money in your ABLE account, but there’s also a lot of flexibility.
  • Save up money without losing benefits. Many benefits programs have resource limits, but:
    • You can have up to $100,000 in your ABLE account and keep getting Supplemental Security Income (SSI) benefits, as long as you meet all other SSI rules. If you go over $100,000, SSI benefits will stop, but they will start up again if your ABLE account drops back below $100,000 and you won't have to reapply.
    • For Medi-Cal and CalFresh, the money in your account will not affect your benefits, no matter how much you have.
    • The money in your ABLE account may not be counted for some other benefits. Check with program representatives to make sure.

The bottom line: An ABLE account means that you can save up money without losing your benefits. It also lets family and friends give you money without affecting your benefits.

Note: After you die, money in your ABLE account may be used to pay back the Medi-Cal program. Look into third-party Special Needs Trusts if this is an issue for your family.

Opening an ABLE Account

There are a few main rules for opening an ABLE account:

  • You can only open an account through a state-designated program or institution.
  • You can only open one ABLE account. (You cannot open accounts in more than one state.)
  • You must have a disability that qualifies for an ABLE account and that began before you turned 26.
    • You can be more than 26 years old when you open your account – all that matters is when your disability began.

You can only have an account if you have a disability. However, another person, such as a parent or guardian, can help manage the account.

Does your disability qualify?

To open an ABLE account, you must have a disability that began before you turned 26 and that meets Social Security’s standards for adults. (SSA’s standards for blindness are different.)

You definitely qualify for an ABLE account if you get benefits like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Childhood Disability Benefits, Medi-Cal (based on your disability), or Medi-Cal's Working Disabled Program, because they all use SSA's disability standards.

If you don’t get disability-based benefits, you can “self-certify” that your disability meets SSA’s standards. For self-certification, you must have documentation verified by a doctor that shows your disability meets SSA standards with one difference: instead of limiting your earnings, you must show that your disability causes "marked and severe functional limitations." Roughly speaking, that means your disability must be on Social Security’s List of Impairments or be at least as severe as an impairment on that list. Conditions on Social Security's list of Compassionate Allowances Conditions also usually qualify.

Keep your disability documentation in a safe place, because the Internal Revenue Service (IRS) might ask to see it.

Comparing State ABLE Programs

Some states offer ABLE accounts and others don’t. California's ABLE account program is CalABLE. Even if your state has an ABLE program, you should compare different state ABLE account programs to see which state’s program is best for you.

When you compare ABLE programs, think about these questions:

  • How easy is it to put money in the account and take money out for qualifying expenses? For example, does it come with a debit card?
  • How good is customer support? Try calling the program to see whether it seems helpful.
  • What investments does it offer? Each state program offers different investment options. Choose a program that offers investments matching your needs.
  • What fees does the program charge? There may be fees for opening the account and for keeping money in it.
  • Does the program offer any extra benefits for people living in your state? For example, some state programs offer extra tax benefits for residents of that state.

Note: You can switch your ABLE account from one state program to another. You do not have to stick with the state program you choose.

Compare the ABLE account options in different states.

Rules on Depositing Money in an ABLE Account

There are two limits on how much can be put in an ABLE account in a calendar year:

  • Up to $15,000 from any source (including your family and friends, your benefits, and other unearned income)
  • Another $12,060 from your own earned income (if you have a job).

Note: This means that if you earn $12,060 or more, you could have a total of up to $27,060 go into your ABLE account in a year. If you earn less than $12,060, the amount you could contribute would be lower.

Important: You need to keep good records, to make sure that too much money isn’t put into your account.

Example

Sam gets SSI and Medi-Cal benefits. He doesn’t work, so he has no earned income. Sam’s mother helps him by putting $500 a month into Sam’s ABLE account. Sam’s done the math and knows that by the end of the year, his mother will have deposited a total of $6,000. Sam’s brother also helps out, by making a big $5,000 deposit into Sam’s ABLE account in February. Combined, his mother and brother will put $11,000 into Sam’s ABLE account over the course of the year. For the rest of the year, the most Sam or anyone else deposits can only add up to $4,000. Even if Sam spends $10,000 on qualified expenses by November and the balance in his ABLE account drops, only $4,000 can be added to the account until the end of the year.

State ABLE programs also have limits on the total amount in your account — typically $200,000 to $500,000, depending on the state. For example, a state program might say that if you have $400,000 in your ABLE account, you cannot deposit any more money.

Rules on Spending Money in an ABLE Account

The money in an ABLE account has to be used for certain qualifying expenses, like:

  • Daily living expenses
  • Education
  • Housing
  • Transportation
  • Help getting and keeping work
  • Health care
  • Assistive technology
  • Legal fees
  • Financial management fees, and
  • Other approved expenses.

Many expenses qualify. For example, your rent, electric bill, and furniture are housing expenses. Gasoline and car repairs are transportation expenses. Health insurance premiums and copayments count as health care. Lunch at a restaurant, toothpaste, and toilet paper are daily living expenses.

Keep receipts whenever you use your ABLE account to pay for a qualifying expense. If you are audited by the IRS, you’ll need to show them how you’ve used your money. You can put all of the receipts into a binder or scan them and save them on your computer.

How Spending Works

An ABLE program may offer a debit card that is linked to the account. If so, you can use the debit card whenever you pay for a qualifying expense. For things like rent, you may need to write checks or withdraw cash from the account instead. You don't need authorization to spend your money: it's your job to make sure your expense qualifies and to keep records of how use your ABLE account.

If you withdraw cash from an ABLE account, spend it on your qualifying expense. Don’t just hold onto the money or put it in a normal bank account – if you don’t spend the money, it could be counted as a resource for benefits programs. For example, if you take $3,500 out of an ABLE account and put it into a regular checking account instead of spending it, you will go over the resource limit for SSI.

As long as the money stays in the ABLE account, it won’t affect your benefits, so leave your money there until you need to spend it.

Learn more about ABLE accounts.

ABLE accounts and Special Needs Trusts

If you already have a Special Needs Trust, it’s a good idea to open an ABLE account as well, because trusts and ABLE accounts have different advantages.

Advantages of ABLE accounts:

  • Provides tax benefits (as long as any money withdrawn is spent on qualified disability expenses)
  • Easier (and cheaper) to open
  • Easier to use the money in the account
  • The person with a disability has more control over the account
  • Money from an ABLE account used for housing expenses doesn't make SSI benefits go down

Advantages of Special Needs Trusts:

  • No limits on contributions
  • Does not require that your disability began before you turned 26
  • Any money left in the trust when you die does not have to be used to repay Medicaid-short, if the trust was set up by someone other than you (a Third Party Trust), with their money
  • The money in a Special Needs Trust does not have to be spent on qualified disability expenses

The bottom line: Because of the limits on how much can be put into an ABLE account each year, you cannot replace a trust with an ABLE account. Instead, use them both as part of your overall asset-building strategy.

ABLE account updates for 2018 can help people who work

Some ABLE rules changed on January 1, 2018:

  • If you have an ABLE account and you work, you can put up to an extra $12,060 of your earnings into your account (on top of the regular $15,000 that is allowed). The $12,060 must be from your own earnings – it cannot be contributions from others or money you get from benefits or other unearned income.
  • If you work and save money in an ABLE account, you may qualify for the Saver’s Credit when you file your federal taxes.
  • Money can be rolled over tax-free from a regular 529 education savings plan to an ABLE account. That means that money which hasn’t been or won’t be used for college can instead be used for expenses that are approved for usage from an ABLE account.
  • If you have an account, you have to make sure that too much money isn’t contributed into your account (even if it is other people making the deposits). Check with your ABLE program if you have questions about this.

This article has been updated to reflect these changes.