WHAT IS AN ABLE ACCOUNT ANDHOW CAN IT HELP PROTECT YOUR PUBLIC BENEFITS?

On December 19, 2014, Congress enacted the Achieving a Better Life Experience Act of 2014 (the “ABLE Act”).  Since then, nearly every State has passed its own complementary law for the implementation of the ABLE Act on the State level.

An ABLE account is a tool available to the disability community that allows a person with a disability to have a special type of account without risking eligibility for their means-tested public benefits.

An ABLE account is similar to a Special Needs Trust (SNT) in that it is not a countable resource for purposes of Medicaid eligibility.  For purposes of Supplemental Security Income (SSI) eligibility, an ABLE account is not a countable resource unless the account exceeds $100,000. Furthermore, distributions from an ABLE account are restricted to certain categories, called Qualified Disability Expenses (QDEs), and there is a mandatory Medicaid payback at the end of the beneficiary’s life.

One of the most important benefits of the ABLE program is that distributions from an ABLE account can be used for housing related expenses without causing a reduction in the beneficiary’s SSI payment.

HIGHLIGHTS OF THE ACT

♦ State Established or Contracted. Each state is authorized to establish and operate an ABLE program. States may contract with other states to operate these programs. If a state does not have an ABLE program, residents may join an ABLE program operated by another state.

♦ Contributions. Contributions into these tax-exempt accounts must be made in cash and may be made by any person.

♦ Contribution Limit. Total annual contributions by all individuals to any one ABLE account are limited to $20,000 for 2026  If an individual with disabilities is employed and does not contribute to a defined retirement plan (like a 401k), they may be eligible to contribute more.  This earned income contribution has a maximum limit of $15,650 in 2026.

♦ Non-Taxable Income. Income earned by the accounts is not taxable, if properly distributed. These accounts are like 529 Plans in that the income earned by the 529 Plan is non-taxable if it is used for certain purposes.

♦ Distributions Not Taxable. Distributions, including portions attributable to investment earnings generated by the account, to an eligible individual for qualified expenses are not taxable.

♦ Qualified Expenses. Qualified Disability Expenses (QDEs) are expenses related to an individual’s disability, such as health, education, housing, transportation, training, assistive technology, personal support, related services, and expenses.

♦ 10% Penalty. Distributions for non-qualified expenses are subject to income tax on the portion of such distributions attributable to earnings from the account, plus a 10% penalty on such portion.

♦ Medicaid Payback. Upon the death of the individual, amounts remaining in the account must be paid back to Medicaid.

♦ Residual Beneficiary. After the Medicaid payback, any remaining funds would be payable to the deceased beneficiary’s estate or to a designated beneficiary and would be subject to income tax on investment earnings, but not to the 10% penalty.

♦ One Account. Individuals are limited to one ABLE account, although an unlimited number of people can make contributions to that ABLE account.

♦ Rollover. ABLE accounts can be rolled over only into another ABLE account for the same individual or to an ABLE account for a sibling who is also an eligible individual.  Furthermore, qualified individuals may roll over 529 Plans or retirement accounts into ABLE accounts.

♦ Age 46. Beginning in 2026, eligible individuals must be deemed disabled before turning age 46.  Individuals who become disabled after age 46 are not eligible for ABLE accounts. Therefore, personal injury victims who sustain their injury after 46 will not be able to benefit from the ABLE legislation.

♦ Disability Standard. The individual’s disability must be based on marked and severe functional limitations or receipt of benefits under SSI or Social Security Disability Insurance (SSDI). There may be disagreements with public benefit agencies as to what constitutes a marked and severe functional limitation absent a Determination of Disability by the Social Security Administration.

♦ SSI/SSDI. An individual does not need to receive SSI or SSDI to open or maintain an ABLE account, nor does the ownership of an account confer eligibility for those programs.

♦ Non-Countable. Individuals with ABLE accounts maintain eligibility for means-tested benefit programs, such as SSI and Medicaid provided the balance does not exceed $100,000.

♦ Asset Limit. ABLE accounts have the same limits as 529 Plans, i.e., in Pennsylvania $511,758 and in New Jersey $305,000. However, if an ABLE account exceeds $100,000, any excess could cause a suspension of SSI until the account is reduced to $100,000 or below. It would appear that earnings in an account would constitute a portion of the account for purposes of determining the $100,000 cap. So, if an account had $100,000 in it at the beginning of the year and earned money during the year, the cap could be exceeded unless distributions were larger than the amount of the earnings.

♦ Housing Expense. Account distributions for housing expenses are not counted as income for SSI purposes.

♦ SSI Suspension. If the balance of the ABLE account, together with the individual’s other assets exceeds $102,000, the individual would be suspended from eligibility for SSI benefits but would remain eligible for Medicaid.

THE POMS

♦ Where Can an ABLE Account be Established? SSA has adopted POMS regulations concerning ABLE accounts.[1]  Under the POMS, an eligible individual can open an ABLE account in any state regardless of residence.[2]

♦ Designated Beneficiary. The designated beneficiary is the eligible individual who established and owns the ABLE account.  To be an eligible individual, he or she must be:[3]

• Eligible for SSI based on disability or blindness that began before age 46; or
• Entitled to Disability Insurance Benefits (DIB), Childhood Disability Benefits (CDB), or Disabled Widow’s or Widower’s Benefits (DWB) based or disability or blindness that began before age 46; or
• Someone who was certified, or whose parent or guardian has certified, that he or she:
• Has a medically determinable impairment meeting certain statutorily specified criteria; or
• Is blind; and
• The disability or blindness occurred before age 46.

♦ Signature Authority. A person with signature authority can establish and control an ABLE account for a designated beneficiary who is a minor child or is otherwise incapable of managing the account.  The person with signature authority must be the designated beneficiary’s parent, legal guardian, or agent acting under power of attorney.  For SSI purposes, the designated beneficiary is considered to be the owner of an ABLE account, regardless of whether someone else has signature authority over it.[4]

♦ Qualified Disability Expenses. QDEs are expenses related to the blindness or disability of the designated beneficiary and for the benefit of the designated beneficiary.  In general, a QDE includes, but is not limited to, the following types of expenses:[5]

• Education;
• Housing;
• Transportation;
• Employment training and support;
• Assistive technology and related services;
• Health;
• Prevention and wellness;
• Financial management and administrative services;
• Legal fees;
• Expenses for ABLE account oversight and monitoring;
• Funeral and burial expenses; and
• Basic living expenses.

♦ QDEs for Housing. Housing expenses for purposes of an ABLE account are the same as they are for ISM purposes.  QDEs for housing are payments for:[6]

• Mortgage, including property insurance required by the mortgage holder;
• Real property taxes;
• Rent;
• Heating fuel;
• Gas;
• Electricity;
• Water;
• Sewer; or
• Garbage removal.

Any distribution from an ABLE account for a QDE will not result in a SSI reduction.  However, any distribution from an ABLE account that does not fall into a QDE category is considered taxable income to the beneficiary of the account, and the IRS will assess a 10% penalty tax on the income portion of the funds used for the non-qualified expense.  Additionally, SSA will then count as a resource any distribution from an ABLE account not used for a QDE.

 IRS REGULATIONS

The IRS has issued regulations.[7]  Significant issues addressed by the regulations include:

♦ Verification of Disability. ABLE accounts can only be opened by beneficiaries whose disabilities began prior to age 46. SSI and SSDI beneficiaries may verify, under penalty of perjury, that their conditions began during the appropriate time period. For individuals not receiving SSI or SSDI, the proposed regulations require a certification of disability signed by a trained physician and submission of additional medical evidence regarding the disabling condition.

The disability must have occurred prior to age 46 and must be determined by either:

• SSI or SSDI eligibility, or
• An affidavit certifying to the disability.

♦ Cessation of Disability. If a person establishes an ABLE account and later ceases to be disabled, the regulations allow him to retain his account, but he is not allowed to make further contributions and funds cannot be withdrawn unless the disability returns. The regulations require annual disability certifications but provide no detail as to how these would be accomplished.

♦ Qualified Disability Expenses. Regulations permit a qualified ABLE program to establish safeguards to distinguish between distributions used for payment of QDEs and other distributions, and to permit the identification of the amounts distributed for housing expenses as that term is defined for purposes of the SSI program. There is no guidance as to how this monitoring would take place.

♦ EIN. A taxpayer identification number of contributors (other than the owner) is not required.

♦ Financial Institutions. Financial institutions need not distinguish and track whether expenditures were for housing expenses, QDEs, and other expenses.  This is the responsibility of the owner.[8]

COMPARISON WITH SPECIAL NEEDS TRUSTS

While ABLE accounts are a useful tool for individuals with disabilities, they are of limited benefit.

♦ Advantages. In comparing ABLE accounts with Third Party Special Needs Trusts (TPSNTs) and Self Settled Special Needs Trusts (SSSNTs), the advantages are as follows:

• Low-Cost Set-Up. It is less expensive to establish an ABLE account than either a TPSNT or a SSSNT, even a Pooled TPSNT or SSSNT. The set-up fees and fees for investments and ongoing administration of the account are minimal.
• Tax-Free Investment Income. While this seems to be a huge benefit to ABLE accounts, actually it is limited. Many disabled beneficiaries have limited income and high medical expenses and would pay little or no tax on investment income anyway. The account size is limited, and investment income is likely small. The total account size must stay under $100,000, and the investment income on a $100,000 account is likely to be small.
• Non-Countable Resource. This is, perhaps, the biggest benefit of the ABLE accounts. The funds in the accounts are non-countable for federal means-tested public benefit programs. This means that an individual or individuals may contribute money to an ABLE account and that money would not disqualify the individual with disabilities from means-tested public benefits.
• No ISM. Monies in an ABLE account are not counted as ISM when distributed for the beneficiary’s housing expenses.
• The beneficiary can control a small amount of money, so long as it is used for QDEs.
• Medicaid Payback. The Medicaid payback is limited to Medicaid received after the date of the establishment of the ABLE account.  This may be an illusory benefit, because of the size of the ABLE account.

♦ Disadvantages. There are a number of disadvantages to ABLE accounts, when compared with SSSNTs or TPSNTs:

• Limit on Size of Account. If the funds in the ABLE account exceed $100,000, the SSI benefit of the trust beneficiary is suspended until such time as the account is reduced to $100,000 or less. Even if the SSI is suspended, Medicaid would remain in effect. A federal maximum individual rate SSI benefit for 2026 is $11,928 per year. This SSI money is income tax free and would represent a significant loss if the account exceeds $100,000.

For lower income individuals, the ABLE accounts is a means of making some provision for their children or grandchildren with disabilities. For middle- or upper-income families, the ABLE account will not provide enough funds to provide a lifestyle that many parents and grandparents want for their children and grandchildren with disabilities. Even middle-income parents and grandparents are able to buy life insurance to fund a TPSNT to reasonable levels.

• Limit on Annual Contributions. Annual contributions from all sources to an ABLE account cannot exceed $20,000. At this rate, it would take five (5) years of contributions to achieve the $100,000 SSI maximum in an ABLE account. Contributions to an ABLE account are not tax deductible. The $20,000 maximum contribution is linked to inflation and should increase each year.
• Medicaid Payback. On the death of the ABLE account beneficiary, any funds remaining in the account must be first used to repay Medicaid for medical assistance advanced after the establishment of the account. While an SSSNT would have the same requirement, a TPSNT would not. Monies remaining in the TPSNT could be passed on to siblings or other beneficiaries.
• Limitation on Distributions. Distributions from an ABLE account can only be made for qualified expenses. Qualified expenses are expenses related to the individual’s disability. The statute and IRS Regulations list some of these expenses. On the other hand, distributions from a TPSNT or SSSNT can be much more flexible. While distributions from a SSSNT are limited by the “sole benefit of” rule, distributions from a TPSNT are even more flexible.
• In cases involving self-settled accounts, if the individual with disabilities is subject to guardianship, then state law may require court approval for the establishment of the ABLE account. In this case, the low-cost benefit of establishing these accounts may be eliminated. In some states, court approval of expenditures from the ABLE account may also be required. Annual accountings and a surety bond may also be required.
• Disability Onset Prior to Age 46. The disability must be onset prior to age 46. Therefore, many personal injury victims or those who suffer from mental illness that cannot be documented as disabled prior to age 46 cannot take advantage of ABLE accounts.
• The individual with disabilities, who is not subject to guardianship, is in control of the money. Consideration should be given as to whether the ABLE account beneficiary will be responsible and use the funds on authorized QDEs, or if he/she will squander the funds or use the account improperly.

SITUATIONS WHERE AN ABLE ACCOUNT IS A USEFUL TOOL

In what situations will ABLE accounts be a useful tool?

♦ Small Personal Injury Recovery. If an individual receives a small recovery from a personal injury lawsuit, he or she may establish an ABLE account for up to $20,000. If the recovery is somewhat larger, a spend down strategy can be utilized in conjunction with the establishment of an ABLE account.

♦ Inheritance. If an individual receives a small inheritance, he or she can establish an ABLE account. Again, if the inheritance is somewhat larger than $20,000, the ABLE account could be used in conjunction with a spend down strategy.

♦ Unspent Funds from SSI/SSDI. If an individual has monies from SSI or SSDI that have not been spent and that would push him or her over the $2,000 resource limit, the excess funds could be placed into an ABLE account.

♦ UTMA Accounts. Transfer of small UTMA accounts to ABLE accounts at age 18 to qualify for SSI or Medicaid.

♦ Onerous Trust Oversight. Avoids onerous trust oversight in states with difficult SNT rules.

♦ Supplemental Income. If a parent has a child with disabilities in a group home and the group home takes a portion of the resident’s SSI payment as rent leaving only a portion available for spending money, a parent could establish an ABLE account so that funds in that account could supplement the SSI funds. A major restriction is that the expenditures from the ABLE account can only be used for QDEs. So long as the parent is living, he or she might simply obtain a credit card for the individual with disabilities and pay non-ISM expenses via the credit card.

♦ To Provide for Child with Disabilities After Death of Parent. For low and low-middle income families, the ABLE account may be used to provide for the child with disabilities after the death of the parent. Because of the cap on account size, this is not ideal, but it may be all that some families can afford.

♦ Structured Settlement. In personal injury cases involving a small settlement, a structured settlement in an amount of the AEA could be considered. For example, a structure paying $20,000 a year for five (5) years could be used to fund the ABLE account. Care must be taken to avoid going over the $100,000 SSI cap. In larger settlements, a structure funding an ABLE account can be used in conjunction with an SSSNT.

♦ Conjunction with Self-Settled and Third Party SNTs. Consideration should be given to establishing an ABLE account in conjunction with any TPSNT or SSSNT.  These trusts should be drafted to include language authorizing the trustee to establish and fund an ABLE account for the trust beneficiary.

♦ Savings Account. An ABLE account could be used for savings for larger purchases without the cost of establishing a (d)(4)(A) trust.

♦ Over Age 64. A disabled individual over age 64, in a state that imposes a transfer of asset penalty on transfers to pooled trusts for individuals over 64, could establish an ABLE account so long as the disability occurred prior to age 46.

FOOD

Payment for food is a QDE and would not result in a penalty if paid from an ABLE account.[9]

HOW TO OPEN AN ABLE ACCOUNT

Currently, the vast majority of states have active ABLE programs available to individuals nationwide.  An individual is eligible to establish an ABLE account if the onset of their disability occurred prior to age 46.  However, there is no requirement that the individual be younger than a certain age to establish an ABLE account.  To qualify, the individual must meet one of the following:

• Receive SSI or SSDI;
• Be determined to be disabled under SSI guidelines;
• Demonstrate that a licensed physician diagnosed them with a disability that qualifies under Social Security’s definition of disability;
• Have one of the Social Security Administration’s Compassionate Allowances Conditions; or
• Be blind.

Most programs allow registration online, and the process is relatively quick.

FEES

Each state has its own fee structure.  For example, New Jersey fees range from 0.28% to 0.34% depending on investment options are selected, plus an additional account maintenance fee of $7.75-$14 per quarter.  Pennsylvania ABLE accounts have an annual maintenance fee of $7.75-$14 per quarter, plus investment fees of .28% to .34%.

 

 

ABLE ACCOUNT V. TPSNT AND SSSNT
Category	ABLE Account	TPSNT	SSSNT
Tax-Free Investment Income	Yes	No	No
Non-Countable Resource	Yes, with limits	Yes	Yes
Cost to Establish	Lower, unless Guardianship	Higher	Higher
Flexibility in Distributions	Qualified Disability Expenses	Flexible	Sole Benefit Of
Medicaid Payback	Yes, after account established	No	Yes, since birth
Contribution Limit	$20,000 Annually	None	None
Account Size Limit	SSI:  $100,000 Medicaid:  529 Plan limit	None	None
Disabled After Age 46	Invalid	Valid	Valid
10% Penalty Excess Distributions	Yes	No	No
Court Approval Required	Only in a Guardianship situation	No	Only where no parent, grandparent, or competent adult beneficiary
Control	Beneficiary or other family member	Trustee	Trustee
Housing Distributions ISM	No	Yes	Yes

[1] POMS SI 01130.740.

[2] POMS SI 01130.740(A).

[3] POMS SI 01130.740(B)(1).

[4] POMS SI 01130.740(B)(4).

[5] POMS SI 01130.740(B)(5).

[6] POMS SI 01130.740(B)(8).

[7] IR-2020-2027 (Oct. 1, 2020).

[8] IRS Notice 2015-81 (Nov. 20, 2015).

[9] POMS SI 01130.740(B)(9).