ABLE Bank Accounts for People with Special Needs

In late 2014, President Obama signed into law the Achieving a Better Life Experience (ABLE) act. The ABLE act creates a new type of bank account for certain persons with disabilities. The money kept in these new accounts won’t count against a person’s ability to qualify for Supplemental Security Income (SSI) or Medicaid. A person with a disability can own and control his or her own ABLE account, and any income earned in the account will not be subject to income tax.

ABLE accounts also come with significant limitations, including the following:

  • Only individuals who are disabled before age 26 can use ABLE accounts.
  • Annual deposits to an ABLE account from all sources are limited to the amount of the federal gift tax exclusion. This amount is $14,000 in 2016.
  • ABLE accounts must be funded with after-tax dollars (like a Roth IRA account) and deposits into the account are not tax deductible.
  • Distributions from an ABLE account can only be used for “qualified disability expenses,” such as health, housing, transportation, or education expenses.
  • Distributions from ABLE accounts for food or shelter will be considered in-kind support and maintenance (ISM) income for SSI purposes.
  • Individuals receiving SSI must keep less than $100,000 in their ABLE accounts to stay qualified for SSI. Persons who qualify for only Medicaid (and not SSI) don’t have to worry about this federal limitation, but a state-determined limitation will apply.
  • When a person with a disability dies, any funds remaining in an ABLE account will be used to reimburse Medicaid for services the person received from that program.

The IRS and the Department of the Treasury have released proposed regulations that provide rules about how the ABLE act can be implemented by states or state agencies. You can learn more on www.irs.gov.

Read more on the state-specific laws for ABLE accounts.

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