What are ABLE accounts?

6 Dec, 2023

What are ABLE accounts? They are investment accounts based on the tax code 529 account, the same tax code as college funds, and have the same tax advantages. They stand for Achieving a Better Life Experience and are designed for people under 46 years old with a disability.

So why would you want to use one?

In the Episode 140 of the Expanding Worlds Podcast Jill Cornfield, answers that question. Jill is an experienced personal finance journalist and former deputy editor of money.com.

ABLE Accounts were introduced in 2014 and are relatively easy to set up. It’s a state-based program, like a college fund, but the basic rules don’t vary much from state to state, although some of the fees might depend on which financial provider is used. Three is a yearly limit of $17k for parents, friends, and family contributions, just like grandparents often contribute to college funds. There can be only one beneficiary and that beneficiary can contribute additional funds if they are working. The funds accumulated don’t affect state benefits unless they run into the hundreds of thousands.

The money can be used for a variety of purposes like purchasing assistive technology or even a home. But it’s not just for big-ticket items and can be used for daily living expenses, like groceries and rent.

While ABLE accounts don’t affect government benefits, some people are reluctant to get one because of a lack of knowledge. In addition in some states Medicaid can claim back any leftover funds after the beneficiary passes away; however, this situation also applies to special needs trusts. So there are some disadvantages to ABLE accounts.

On the advantages side, though, ABLE accounts are cheap and easy to set up. You don’t need a lawyer or a financial advisor. The ABLE National Resource Center website is an encyclopedia of information and very easy to navigate, and has a comparison tool.

One big advantage is that money in ABLE accounts can be invested, and money invested often has the benefit of compounding to grow even further. This helps with longer terms plans and enables people to look towards their future.

As Jill says, “You’ll lose nothing by learning more about them, just digging in and finding out as much as you can. Maybe they will work for you and your family.”

Disclaimer: I am not a financial advisor or lawyer. This blog is for educational purposes only. It is not intended to be financial advice and should not be used as such. You should always seek professional advice from someone suitable qualified, who can become familiar with you, your family, and your family’s finances, and your young person’s hopes and dreams for their future.

Extra Reading

ABLE accounts let the disabled plan, dream and save big—without risking essential federal benefits by Jill Cornfield