The ABLE (Achieving a Better Life Experience) Act provides individuals with disabilities a way to save for qualified expenses without jeopardizing eligibility for essential government benefits like Supplemental Security Income (SSI) and Medicaid. Since the passage of the ABLE Act, each state has developed its own version of the ABLE program, offering distinct features, including contribution limits, investment options, and fees.
This state-by-state overview of ABLE accounts aims to provide individuals with disabilities, their families, and advocates with detailed information on the available programs across the United States. Understanding these state-specific variations can help maximize the benefits of these accounts, ensuring that individuals with disabilities have the financial tools necessary to achieve greater independence and financial security.
Read More: Qualified Expenses for an ABLE Account
What Is an ABLE Account?
An ABLE (Achieving a Better Life Experience) account is a tax-advantaged savings tool designed for individuals with significant disabilities that were diagnosed before the age of 26. These accounts allow contributions from the account holder, as well as friends and family. Funds in the account grow tax-free if invested, providing a powerful way to save for qualifying expenses without affecting eligibility for government benefits like SSI and Medicaid.
ABLE programs are state-run, leading to variations in the account features depending on the state. While some states allow non-residents to open ABLE accounts, others restrict participation to in-state residents only. Notably, Idaho, North Dakota, South Dakota, and Wisconsin currently do not offer active ABLE programs.
Since their introduction, ABLE accounts have gained popularity. As of the last quarter of 2023, there were 151,164 ABLE accounts holding approximately $1.5 billion in assets. This represents a significant increase from the previous year.
This article provides a comprehensive overview of ABLE programs by state, helping you navigate your options and select the best account for your needs.
Key Takeaways
- When selecting an ABLE account, it’s important to consider various factors, such as account fees, contribution limits, and the specific benefits offered by each state’s program.
- An ABLE account is a tax-advantaged savings and investment account designed for individuals with significant disabilities, allowing tax-free growth on the funds.
- ABLE programs are managed by individual states, and features such as fees and account options can vary from state to state.
- Some states do not offer ABLE accounts, while others may restrict participation to in-state residents. However, several states allow out-of-state residents to open an account.
How ABLE Accounts Work
ABLE accounts were established by the 2014 Achieving a Better Life Experience (ABLE) Act to help individuals with disabilities save money without jeopardizing their eligibility for public benefits like Supplemental Security Income (SSI) and Medicaid. Prior to ABLE accounts, individuals receiving SSI were limited to having no more than $2,000 in countable assets (or $3,000 for couples), or they risked losing their benefits.
The ABLE program allows eligible individuals to open a tax-advantaged account where they, as well as family and friends, can contribute funds. Although contributions are not tax-deductible, some states may offer state income tax deductions. The funds in the account grow tax-free, and the money can be used for qualified disability expenses, such as education, housing, transportation, employment support, and more.
While only one ABLE account is allowed per individual, funds can be held in cash or invested. Cash deposits in an ABLE account through FDIC-insured institutions are protected up to $250,000. As long as the funds are spent on qualified disability expenses, no taxes will be owed on the withdrawals.
Qualified expenses include:
- Education
- Housing
- Transportation
- Employment training and support
- Assistive technology and services
- Personal support services
- Health and wellness
- Financial management services
- Legal fees
- Account oversight and monitoring
- Funerals and burials
- Basic living expenses
How Much You Can Contribute Each Year
For 2023, the annual contribution limit for ABLE accounts is $17,000. However, individuals who are employed can contribute above this limit, thanks to the Tax Cuts and Jobs Act of 2017. Under the ABLE to Work Act, an ABLE account beneficiary who does not participate in an employer-sponsored retirement plan may contribute an additional amount, up to the lesser of either the prior year’s federal poverty limit (which was $13,590 in 2022) or the account holder’s annual compensation.
Differences by State
Because ABLE programs are established by individual states, there are variations in the accounts offered across the country. Four states—Idaho, North Dakota, South Dakota, and Wisconsin—currently do not have active ABLE programs. If you reside in one of these states, you can still open an account with a state program that accepts out-of-state residents. Additionally, some states restrict ABLE account participation to residents only.
States also differ in terms of the maximum balance you can maintain in your ABLE account and the fees associated with managing the account. Many states (though not all) offer a debit card to access the funds in the account.
Despite these differences, some key features are consistent across all states. For example, the federal contribution limit remains the same nationwide, and qualified expenses are uniform across all ABLE programs.
Choosing an ABLE Account
Selecting the right ABLE account involves evaluating several factors to ensure the account meets your needs. A great starting point is the ABLE National Resource Center website, which provides comprehensive details about each state’s ABLE program.
The ABLE National Resource Center suggests considering your home state’s ABLE plan first, as it may offer state income tax deductions or credits for contributions. Additionally, some states may waive the Medicaid payback provision for residents who choose their home state’s ABLE plan. While most ABLE accounts can be opened online, some states may have physical locations where you can open and manage your account.
If your home state does not offer an ABLE program, you can explore options from out-of-state providers. Here are the key factors to consider when selecting an ABLE account:
- Out-of-state Enrollment: Ensure that the program accepts out-of-state residents if your home state does not offer an ABLE plan.
- State Tax Benefits: Check if your state provides a tax deduction or credit for contributions to in-state ABLE accounts and the specific amount available.
- FDIC Insurance: Confirm whether the account is FDIC insured, protecting your cash savings.
- Account Fees: Evaluate the fees associated with maintaining the account.
- Account Portability: Investigate whether you can roll your ABLE account over to another state’s plan if needed.
- Debit or Purchasing Cards: Consider whether the program offers a debit card for easy access to funds.
- Contribution Limits: Different states have varying maximum contribution limits, ranging from $235,000 to $550,000. Note that only the first $100,000 in the account is exempt from affecting eligibility for Supplemental Security Income (SSI).
The ABLE National Resource Center offers a comparison tool that allows you to explore and compare different state programs, helping you choose the one best suited to your needs.
Are ABLE Accounts Available in All States?
No, not all states have their own ABLE program. States such as Idaho, North Dakota, and South Dakota do not offer ABLE accounts. However, individuals living in these states can still open an ABLE account with any state that accepts out-of-state residents into their program.
How Many ABLE Programs Are There?
As of January 2023, there are 49 active ABLE programs across the United States, most of which allow eligible individuals to open an account regardless of their state of residence.
Do Banks Offer ABLE Accounts?
Yes, many ABLE programs are offered through banks, ensuring that your funds are secure. Additionally, many of these programs provide debit cards, allowing you to conveniently access and spend the funds from your ABLE account.
Frequently Asked Questions
What is an ABLE account?
An ABLE account is a tax-advantaged savings account designed for individuals with disabilities, allowing them to save money without losing eligibility for public benefits like SSI and Medicaid. The funds in the account grow tax-free, and withdrawals used for qualified disability expenses are not taxed.
Who is eligible for an ABLE account?
Individuals diagnosed with a significant disability before the age of 26 are eligible for an ABLE account. The disability must meet certain criteria set by the IRS.
How much can I contribute to an ABLE account each year?
The contribution limit for ABLE accounts is $17,000 annually for 2023. If the account holder works and is not participating in an employer-sponsored retirement plan, they may contribute additional funds under the ABLE to Work Act, up to the federal poverty limit or the individual’s earned income, whichever is lesser.
Can I have more than one ABLE account?
No, each individual is allowed to have only one ABLE account.
Can I open an ABLE account in any state?
While some states only allow residents to open ABLE accounts, many states accept out-of-state residents. If you live in a state that doesn’t offer an ABLE program, you can open an account in a state that does.
What can I use the funds in my ABLE account for?
Funds in an ABLE account can be used for qualified disability expenses such as education, housing, transportation, employment support, health care, assistive technology, and more. A detailed list of eligible expenses is available on the ABLE National Resource Center website.
Conclusion
ABLE accounts offer a valuable opportunity for individuals with disabilities to save and invest without jeopardizing eligibility for important public benefits like SSI and Medicaid. While the specifics of ABLE programs can vary by state, these accounts provide a tax-advantaged way to cover a wide range of disability-related expenses.