Ready and Willing to Consider an ABLE Account? | Lord Abbett
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Retirement Perspectives

This tax-advantaged savings vehicle, designed to help disabled individuals and their families, can be used along with or instead of a special needs trust.

Read time: 4 minutes

Financial planning for individuals with special needs can be complex, requiring navigating a maze of countless and ever-changing federal, state, and local rules and regulations. The reality is that when there is a disabled child, the family financial plan spans multiple generations, taking into account both the child and caregiver. And importantly, the plan needs to consider the role of public (government) benefits and how to minimize taxes.

Fortunately, a certain type of tax-advantaged account is available to help individuals with special needs, and their families, cover their living expenses. The Achieving a Better Living Experience (ABLE) Account was established by Congress in 2014 to help ease the numerous savings challenges individuals with special needs and disabilities experience. In 2020 the Internal Revenue Service issued final guidance under Section 529A, essentially creating a tax-advantaged account that allows them to save for their expenses while retaining their eligibility for public benefits.

The advantages of ABLE Accounts

Tax-deferred savings: The beauty of an ABLE account is that assets grow tax-deferred and funds (including earnings) are distributed tax free when used to pay for “qualified disability expenses” (QDEs).  More on QDEs below.

Keep your government benefits: An ABLE account offers certain individuals with a disability a savings mechanism that does not interfere with an individual’s eligibility for means-tested government benefits, such as Supplemental Security Income (SSI) and Medicaid. The value of an ABLE account is not considered an asset when determining eligibility for Medicaid benefits.

To qualify for SSI, an individual generally cannot have monetary assets of $2,000 or more. A primary benefit of an ABLE account is that unlike most other assets, an SSI recipient can save over the $2,000 resource limit. In fact, the first $100,000 in ABLE account is disregarded. If the account value exceeds $100,000, the SSI benefit would be suspended (but not terminated) until such time as the account balance dips below $100,000. This limit, however, has no effect on Medicaid or any other federally means-tested benefits. 

How ABLE Accounts Work


ABLE accounts provide individuals with special needs an incredible opportunity to save large sums of money without losing support and services provided through public provided benefits such as Medicaid.


The framework for ABLE accounts is similar to Section 529 College Savings Plans. The accounts are funded with after-tax dollars (although some state plans offer a state tax deduction for in-state residents), assets are tax-deferred, and distributions (including earnings) for QDEs are tax free.

QDEs include basic living expenses, not just medically necessary expenses, such as services needed to maintain or improve your health, independence, or quality of life. Examples include housing, transportation, legal fees, employment training, health and wellness, financial management, funeral services and more.

If ABLE funds are not spent on QDEs, the earnings portion of the distribution is subject to income tax and a 10% early withdrawal penalty, which may impact means-tested benefits. It’s critical to monitor withdrawals, distributing only what is needed to pay for qualified disability expenses.

Generally, a person may only have one ABLE account. Furthermore, over the lifetime of the account, the account balance may not exceed a limit, which ranges from $235,000 to $529,000, based upon ABLE plan state limit.

Important: Special rules apply in the event of the account owners death. Assets remaining in an ABLE account are generally used to reimburse a state for any Medicaid payments received while the beneficiary was alive.

To establish an ABLE account, the beneficiary must be disabled, and the disability must have occurred before the individual’s 26th birthday. If a beneficiary meets this age requirement and is also receiving SSI or Social Security Disability Income (SSDI) payments, he/she automatically qualifies to establish an ABLE account. You can be older than age 26 to establish an ABLE account if the disability began before your 26th birthday.

For those individuals who have satisfied the age requirement but do not qualify for SSI/SSDI, eligibility remains possible. Here you need to meet Social Security’s definition of disability and receive a letter of certification from a physician.

The 2021 contribution limit is generally limited to $15,000 (amount equal to the annual gift tax exclusion). Anyone can contribute to your ABLE account, including friends, family, your employer and, yourself. What’s more, if a designated beneficiary is the one who makes the contributions, he/she will now be able to claim the Savers Credit as well, which is normally only available for contributions to retirement accounts.

Should the annual ABLE contribution limit be maxed out, designated beneficiary themselves may be able to make an additional contribution, under a separate provision, if they have earned income from employment. You can learn more here Also, the beneficiary cannot also be contributing to an employer retirement plan (401(k), 403(b), or 457(b) plan).


New rules permit 529 assets to be rolled over to an ABLE account (without taxes and/or penalties), if the 529A beneficiary is the same person (or a member of the same family) as the original 529 account. The rolled over amount counts toward the overall limitation on amounts that can be contributed to an ABLE account within a tax year—any amounts rolled over in excess is includible in gross income of the distribution. Rollovers from 529 plans to ABLE accounts will still be restricted to (and count toward) the annual contribution limit for ABLE accounts.

How to set up an ABLE account

Most, but not all, states have established an ABLE program. However, a beneficiary or their caretaker can still establish an ABLE account if the designated beneficiary resides in a state that has not yet established a program. The qualifying individual can enroll in another state’s ABLE plan if it accepts out-of-state residents.

NOTE: 529 ABLE accounts are not available at Lord Abbett. Please contact your financial advisor, accountant or tax professional to find out which account and provider may be suitable for your savings needs.

Key Takeaways

  • ABLE accounts help individuals with disabilities save for their living expenses in a tax-advantaged manner, while preserving their eligibility for public benefits. They can be used along with or in place of a special needs trust.
  • To be eligible, beneficiaries for this type of account must be disabled, and their disability must have occurred before their 26th birthday.
  • The ABLE National Resource Center has a very good website where you can learn more about this special account.


To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, recommending to another party any transaction, arrangement, or other matter.

These materials do not purport to provide any legal, tax, or accounting advice.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.



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