The Achieving a Better Life Experience (ABLE) Act is a federal law that allows some people with disabilities or their family members to establish a tax-free savings account for their financial needs. Recent federal legislation, including the ABLE Adjustment Act and the One Big Beautiful Bill Act (OBBBA), will substantially expand the availability of ABLE accounts over the next few years. As a result, parents of children with special needs should consider whether an ABLE account would be a positive addition to their child’s care plan.
Whether an ABLE account is beneficial to a particular individual depends on various factors. As a result, families should weigh the pros and cons of ABLE accounts to decide whether to establish one for their child.
The Pros of ABLE Accounts
ABLE Accounts Maintain Eligibility for Means-Tested Public Benefits
ABLE account balances are typically not considered assets when determining eligibility for means-tested public benefit programs like Supplemental Security Income (SSI) and Medicaid. For SSI, up to $100,000 held in an ABLE account is excluded from asset limits, while Medicaid imposes no cap on the amount that can be exempted but each state has their own cap that applies. ABLE accounts also do not factor into eligibility determinations for HUD, Medicare, SNAP, and FAFSA. These rules enable individuals with disabilities to receive essential government assistance while also saving money to cover future expenses beyond the scope of existing benefit programs.
ABLE Account Investments Grow Tax-Free
Investments in ABLE accounts grow tax-free. Likewise, withdrawals from ABLE accounts for qualified expenses are not taxable.
ABLE Accounts Are Flexible
Parents, grandparents, or guardians can set up ABLE accounts for a person with disabilities. A court can also order that funds belonging to a person with special needs be placed in an ABLE account. However, a person with special needs can also establish an ABLE account on their own, without contributions or family member intervention.
Similarly, a person with disabilities who owns an ABLE account can access and manage account funds without relying on others for assistance. The format of these accounts can make it easier for individuals to be self-reliant and manage their own financial affairs. With that said, a person with disabilities can also authorize others to access and manage those accounts if they need assistance.
The Cons of ABLE Accounts
Usage of ABLE Account Funds is Limited
ABLE account funds can only be used for qualified disability expenses. Withdrawals from ABLE accounts used for other purposes are taxable and can endanger eligibility for means-tested public benefits programs.
Still, ABLE account proceeds can be used for a broad range of qualified disability expenses, including the following: housing, education, transportation, healthcare, assistive technology, employment training, and other costs that improve quality of life. If the expense is related to maintaining or improving the account holder’s health, independence, or well-being, it counts as a qualified disability expense.
Contributions to ABLE Accounts are Limited
The 2025 annual ABLE account contribution limit is $19,000. This contribution limit is tied to the annual per-donee gift tax exclusion, which is adjusted for inflation each year. Therefore, the annual contribution limit will continue to rise in future years.
However, employed individuals with special needs who do not contribute to certain qualified retirement plans can contribute an additional amount to their ABLE accounts, up to the maximum contribution limit. That amount is capped at the lesser of the individual’s compensation for the tax year or the poverty line for a one-person household determined for the previous calendar year. The 2024 poverty line is $15,060 for 48 states and the District of Columbia, $18,810 for Alaska, and $17,310 for Hawaii.
Persons with ABLE Accounts May Be Vulnerable to Exploitation
While the ability of individuals with disabilities to manage their ABLE accounts gives them flexibility and independence, it also can make them vulnerable to exploitation. If individuals who are easily influenced by others have control over their ABLE accounts, they could be persuaded to give the funds to others or spend them inappropriately.
ABLE Accounts Are Subject to Medicaid Reimbursement Rules
If a person with special needs has an ABLE account and passes away, any remaining account balance must be used to reimburse the government for any Medicaid benefits the person received during their lifetime. If any funds remain after reimbursement, probate court proceedings are necessary to transfer them to the individual’s heirs.
Frequently Asked Questions
How do recent changes in federal law affect who qualifies for an ABLE account?
The ABLE Adjustment Act and the One Big Beautiful Bill Act (OBBBA) are expanding eligibility for ABLE accounts. Previously, only individuals whose disability began before age 26 could qualify. These new laws raise the age threshold to 46 by 2026, significantly increasing the number of people who can open ABLE accounts. This change allows more families and individuals to benefit from the tax advantages and public benefit protections that ABLE accounts offer.
Can ABLE accounts be integrated with other financial planning tools, such as special needs trusts?
Yes, ABLE accounts can complement special needs trusts (SNTs). While SNTs offer more flexibility in how funds are used and are not subject to Medicaid payback rules, ABLE accounts provide tax-free growth and easier access to funds for qualified disability expenses. Many families use both tools together: the trust for long-term, protected assets and the ABLE account for day-to-day expenses. A qualified attorney can help determine the right mix based on your child’s needs and your family’s financial goals.
What steps should families take to protect ABLE account holders from financial exploitation?
To safeguard ABLE account holders, families can take several proactive steps:
- Assign a trusted individual as an authorized legal representative to help manage the account.
- Set up alerts or monitoring tools through the financial institution to track transactions.
- Educate the account holder about safe financial practices and the importance of using funds only for qualified expenses.
- Consult with an attorney to explore legal protections, such as limited powers of attorney or court oversight, if needed.
These measures help balance independence with protection, ensuring the account serves its intended purpose without exposing the individual to undue risk.
Contact Us Today to Learn More About Our Legal Services
Rubin Law is the only Illinois law firm to dedicate itself exclusively to providing compassionate legal services for children and adults with special needs. We offer unique legal and future planning techniques to meet your family’s individual needs.
Call us today at 866-TO-RUBIN or email us at email@rubinlaw.com to learn more about the services we can offer you and your family.