ABLE Accounts

ABLE accounts are a good tax-preferred savings plan for the disabled. 

These state-run accounts let people make nondeductible contributions of up to $16,000 a year to help the disabled maintain their health, independence and quality of life. Lifetime payins are capped at the same level as the state’s 529 plan. ABLE accounts can be opened only for people who became blind or disabled before age 26. Disabled working individuals can open their own ABLE accounts and can make contributions to the accounts over the $16,000 annual payin cap. This additional yearly contribution is limited to the poverty level for a single person…$13,590 for 2022. This figure is higher for individuals living in Alaska or Hawaii. Limited rollovers are allowed from a beneficiary’s 529 plan to an ABLE account. Account owners remain eligible for Medicaid, and balances of $100,000 or less don’t affect their eligibility for Supplemental Security Income benefits. 

Withdrawals of earnings are tax-free if used for qualified purposes…

housing, transportation, education, job training, health needs, personal support, assistive technology, financial and administrative services, legal fees and the like. IRS recently approved the tax-free withdrawal of earnings from an ABLE account for home mortgage payments and monthly auto payments, provided the house and vehicle are owned by the disabled beneficiary. Withdrawals for such purposes made after the beneficiary’s death are also considered qualified distributions. Earnings used for non-qualified purposes are taxed and hit with a 10% fine.