Definition and Examples of an ABLE Account
An ABLE account is a special investment account designed for individuals who develop a disability before turning 26. This account offers a way for those individuals and parents of children with developmental disabilities who receive Social Security income to achieve financial stability through a tax-advantaged savings account. The funds in an ABLE account are protected from Medicaid Estate Recovery asset seizures, providing a safety net for those facing disabilities. Eligibility for an ABLE account requires the disability to be identified before age 26, and the account holder must be receiving Supplemental Security Income (SSI) and/or Social Security Disability Insurance (SSDI).
History of the ABLE Account
The ABLE account was established in 2014 with the passing of The Achieving a Better Life Experience (ABLE) Act. This act allows states to create accounts for individuals with disabilities to cover qualified disability expenses with tax-free distributions. The purpose of ABLE accounts is to safeguard assets from being seized by Medicaid, ensuring that individuals with disabilities can maintain crucial support and resources even after their guardians pass away.
How an ABLE Account Works
Individuals who qualify for an ABLE account, having been diagnosed or identified with a disability by age 26, can open an account and make contributions of up to $15,000 annually. While contributions are not tax-deductible, the earnings from investments in an ABLE account are tax-free. This unique account structure allows disabled individuals to save for essential expenses such as housing and assistive technology without the risk of losing eligibility for Medicaid services. Additionally, ABLE account holders can access their funds through a debit card, providing a convenient way to manage their finances.
