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Guide to 529-ABLE Accounts

By Eric Bank


Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014, establishing 529 ABLE plans that offer tax-deferred investments and savings for households with a disabled person. The plans are operated by states and allow investments to grow tax-free for folks with qualifying disabilities. 529-ABLE accounts are structured akin to the better-known 529 Education Savings Plan. The money you sock away in a 529-ABLE account is not included in the $2,000 cap on cash savings, retirement funds and other items of significant value that you must observe to qualify for important disability benefits from the government.

ABLE accounts supplement, but do not replace, the money you get from private insurance, Medicaid, Social Security, employers and other sources. You can use ABLE money to pay for all sorts of essential expenses. These can mount up, because people with disabilities are now living longer, enjoying more productive and healthier lives, and contributing to society by working or performing other important activities.

History of the ABLE Act

The ABLE Act developed from the conscientious efforts of board members at the Down Syndrome Association of Northern Virginia (DSANV). The initial work resulted in 2006 legislation, the Financial Savings Account for Individuals with Disabilities (FSAID) Act, which unfortunately did not pass. It was revised and renamed in 2010, and finally passed Congress in 2014 as an extension to Section 529 of the Internal Revenue Code.credit-card16.jpg

Then, at the conclusion of its 2015 session, Congress liberalized the rules regarding the establishment of 529-ABLE accounts. You now can shop for an ABLE plan offered in any state, not just the state you live in. This new feature will allow you to open an ABLE account as soon as the first state ABLE plan starts operating later this year. The competition among states will result in more investment options and will help keep fees low.


Eligibility is determined in a couple of ways:

1. Individuals eligible for or receiving Social Security disability benefits or supplemental security income benefits, or

2. Individuals diagnosed with a physical or mental loss that produces significant limitations and which is likely to last at least 12 months or be fatal. Blind persons are automatically eligible.

To be eligible, the designated beneficiary of a 529-ABLE account must meet certain age restrictions. The rules limit your eligibility to disabilities developed before reaching 26 years of age. You don’t have to under 26 to set up an ABLE account. You could be older than 26, but you’ll have to keep documentation of your disability that shows the age of onset to be prior to the age of 26.


You can use the money in a 529 ABLE account for a variety of expenses without any effect on your income taxes:

  • Housing: The expenses of your principal home, including rental or purchase costs, utilities, mortgages, and property taxes.

  • Education: Expenses covering education in pre-school through post-secondary institutions, including supplies, tuition, tutors, books and disability-related special education services.

  • Transportation: You can use the ABLE account money to buy, lease or modify a vehicle, as well as for the costs of moving and mass transit use.

  • Employment: Expenses associated with landing and keeping a job, such as assistive technology. personal assistance support and work-related training.

  • Health: Use the money to pay for health and wellness costs, including dental and medical treatment, insurance premiums, vision care, medical equipment, rehabilitation services, long-term-care services, respite care and other devices and services.

  • Assistive Technology: The costs arising from assistive technology and personal support.

  • Miscellaneous: Your account can be used to pay for home improvement, legal fees, oversight and monitoring, financial management services and burial/funeral costs.

  • Other Approved Expenses: These are any expenses specially approved for you by the government.

You will have to pay income tax and a 10 percent penalty on any money you take from your 529 ABLE and use for a non-approved reason.

Contributions and Transfers

The total annual contributions to an ABLE plan are capped at $14,000. This limit will be adjusted over time for inflation. Each state can set its own lifetime contribution limits. For instance, Virginia sets the lifetime contribution limit at $350,000.

ABLE Plan assets of up to $100,000 are excluded from federal asset/income tests used to determine whether you are eligible for federal disability benefits. If your ABLE account balance exceeds $100,000, you won’t be eligible to receive Social Security benefits, but are still eligible for Medicaid. After you pass away, the state can try to recoup from your estate the Medicaid money it spent on you.

You cannot take a tax deduction for contributions to an ABLE account. You can access 529-ABLE funds at any time, and the account doesn’t effect your Medicaid coverage.

If you already have a Coverdell Account or a Uniform Gifts/Transfers to Minors Account, you can roll it over into a 529 ABLE account. You can also rollover a 401k account or IRA into the ABLE account.

IRS Guidance

The IRS issued interim guidance in November 2015 concerning implementation of the ABLE program. These include:

ABLE plans do not have to include safeguards to verify that distributions pay for qualified expenses, including housing expenses. This task is left to the disabled beneficiary of the plan in order to calculate any income tax obligations.

  • Contributors to a 529-ABLE account don’t have to supply a taxpayer identification number (TIN) as long as the plan administrator is able to reject contributions that are in excess of the state’s annual limit. If too much money is contributed in any one year, the plan administrator must request contributor TINs.

  • You don’t have to provide a written diagnosis to the plan administrator to open a 529-ABLE account, and ABLE programs don’t need to collect, examine or keep your details medical records. You will, however, have to certify you meet qualification criteria, under threat of perjury. This means you should get a written diagnosis from your physician and keep it in a safe place in case the IRS asks to see it.

Frequently Asked Questions