529 ABLE Savings Account: What It Is and How to Set One Up for Your Special Needs Child

Trisha Miller  | 

If you’re struggling to find a savings account that works for your loved one with special needs, the 529 ABLE account was created specifically with disabled individuals in mind. In this guide, we’re going to talk about everything you need to know about ABLE accounts. Namely, you should know how the account works, what the benefits are, how it affects your taxes, who can qualify, and how the money can be spent.

What Is an ABLE Account?

A 529 ABLE account is a new program (as of 2014) created specifically to help individuals with disabilities. Prior to the creation of the ABLE account, many families with disabled loved ones had a hard time qualifying for many government benefits that they were entitled to. For example, if a person or a supporting family appears to make too much money in a given year, they may be cut off from social security disability benefits.

The ABLE account works around this problem. ABLE accounts do not affect a person’s eligibility for most benefits. While there are certain stipulations to this, the basic idea of an ABLE account is to allow your family the ability to earn money, save for the future, and ensure that your loved one will be taken care of financially.

The “529” part if the account relates to another type of account that was created for disabled individuals receiving an education. A very similar account exists, called a 529 college savings account, which is non-taxable and allows donations in a similar fashion. In 2014, the 529 ABLE account was created, which essentially works the same way, but allows for savings to be spent on a wide variety of needs, not just education.

What Are the Benefits of an ABLE Account?

One of the biggest benefits of an ABLE savings account is the fact that contributions are not taxable. When your loved one needs to withdraw funds from the account, they will be able to remove funds from the account without them being taxed. That is, as long as they do not spend the funds on anything unrelated to their disability. Any cost in their life that is affected by their disability counts as an non-taxable expense.

What’s more, contributions to an ABLE account will not affect your loved one’s eligibility for social security benefits until the account accrues more than $100,000 in savings. Normally, the government would see this as a means of income. However, the ABLE account was created with this specific need in mind.

Now, families with disabled individuals can save much more than they would have ever been able to otherwise without their benefits being affected. In addition, if their account has over $100,000, other benefits (like Medicaid) will not be affected. If the account drops back down below $100,000 the disabled individual will once again qualify for social security benefits.

How Is an ABLE Account Different From a Special Needs Trust?

To start, special needs trust funds are often quite expensive to create. Depending on which trust institution you choose to go through, you may also have to try and work around annual contribution limits that are inadequate. There are often large annual fees associated with these accounts as well. Sometimes funds coming out of these accounts are highly taxed, depending on the type of trust you choose and the policies of that trust. So, if you’re going to find a trust, make sure that you find one that works within your financial plans before you commit.

Many people choose to create both an ABLE account and a special needs trust. Doing so just gives you that much more stability and assurance that your loved one will be able to accrue enough assets to last them the rest of their life. Since the creation and contribution to both of these accounts does not affect your government benefit eligibility, there’s no reason not to save in multiple places if you are able to.

Who Is Eligible for an ABLE Account?

Only one ABLE account is allowed per person. The reason for this is that only individuals with disabilities that were onset before the age of 26 qualify for an ABLE account. The account is placed in the disabled person’s name, not anyone else. This doesn’t mean that only a person under the age of 26 can have an ABLE account. Those over the age of 26 can still qualify for the account, but their disability must have been diagnosed and have affected them before age 26 to apply.

How to Set Up an ABLE Account for a Special Needs Individual

Documents Needed to Open an ABLE Account

If your loved one was diagnosed with a disability before age 26 and they are receiving social security benefits, then they already qualify for an ABLE account. All you have to do is look up the ABLE savings account program in your state. If your state doesn’t have one, yet (the program is available in ~30 states right now) you can sign up for a program in another state that allows out-of-state applications. You do not have to have an ABLE program in your state to qualify. Any state that allows outside applications works just the same.

If your loved one is not receiving social security benefits, you will need to check and see if they match the social security benefit definition of significant functional limitations. In addition, your doctor will need to provide documentation that your loved one has a disability and be able to proof that it was onset before the age of 26.

Contribution Limits

Contributions to an ABLE account via someone other than the account holder (the individual in need) can equal up to $15,000 per year. This number may fluctuate the coming years, but as of 2018 that is the current annual limit. However, if your loved one has a job and is making regular contributions to their own ABLE account, the government still counts this as income and it may affect their ability to qualify for government benefits.

If your primary special needs savings account happens to be the ABLE account, you may be able to contribute more to the account than the annual limit. Account holder who are employed are able to contribute over the $15,000 limit as long as they have not made deposits to another similar savings account. Of course, you’ll need to talk with an official in the state program that you enrolled in for specific details pertaining to your case.

Allowed Expenses

All expenses that directly have to do with a person’s disability count as an non-taxable cost. This includes everything from education, to living expenses, housing, transportation, employment costs, assistive technology, personal support services, health care expenses and in-home care, financial management and administrative services, and more. Anything that is going to improve the overall quality of life for this individual, as it relates to their disability, may be considered as an allowed expense.

Preparing for the future of your loved one with special needs is obviously incredibly important. The 529 ABLE account is a fantastic idea for anyone with disabilities, whether the individual is dependent or not. This account gives you peace of mind knowing not only that your loved one’s financial future can be planned for, but that they won’t have to suffer unnecessary taxation. This account, when used in conjunction with other accounts is a smart way to prepare your loved one for all financial future possibilities.


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Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.

This post was updated March 27, 2018. It was originally published March 28, 2018.