ABLE accounts: A tax-free way for parents of disabled kids to save for the future

For parents of children with disabilities, tax-free Achieving a Better Life Experience (ABLE) accounts can be an invaluable tool for helping those kids live to the fullest later in life, according to money expert Clark Howard.

In this article, we’ll explain how ABLE accounts work and how best to take advantage of them.

ABLE accounts explained

Signed into law in December 2014, the ABLE Act offers a way for the parents of disabled children to save money for education and other expenses just like they would with a 529 plan.

Similar to 529 plans, ABLE accounts are administered by the states and you can participate in most other states’ plans regardless of where you live. You may, however, get a tax benefit for participating in your state’s plan.

What does an ABLE plan allow you to do? 

Participating in an ABLE plan allows you to save money tax-free and spend it tax-free on your child’s qualified disability-related expenses, including school tuition, housing, transportation, job training and more.

“ABLE plans are usually of most interest to people who are older parents and worry about where money will come from and who will provide care for your child when you’re not with us anymore,” money expert Clark Howard says.

How do I know if my child qualifies?

To qualify for participation, your child needs to have a diagnosable disability before age 26 that is expected to last 12 consecutive months or longer. Your child must also be receiving Supplemental Security Income (SSI) and/or Social Security Disability (SSDI).

What are the annual contribution limits? 

Annual contribution limits for 2019 are set at $15,000, which is the amount of the annual gift tax exclusion that lets you give money to anyone tax-free for any reason.

Setting the bar at $15,000 for the year effectively removes the barriers that existed before. Previously, a disabled person risked losing out on government programs if their monthly income exceeded $700 or they had savings and other assets valued at more than $2,000.

Know the impact of the new tax law on ABLE accounts

Under the new tax law, a gainfully employed ABLE recipient can now stash away an additional $12,140 of their gross income into their ABLE account in the absence of any employer-sponsored retirement plan.

Furthermore, an ABLE recipient who works may also qualify for the Saver’s Credit and receive up to $2,000 as a reward for saving money!

Are there any state caps?

Certain states will cap lifetime ABLE contributions at $300,000, according to SavingforCollege.com. But there’s an earlier mile marker to take note of before you reach that goal: When your child’s ABLE account balance is $100,000, he or she can longer receive SSI benefits.

If you’ve already saved money for your child in a traditional 529 plan prior to a disability diagnosis, you can roll that money into an ABLE account if your child has a disability that manifests after they’re well into their school years — a later autism diagnosis, for example.

State plan links for ABLE accounts

Here’s a list of states with ABLE plans, courtesy of SavingforCollege.com:

State	Plan Name	Residency Requirement	State Tax Deduction	Total Asset-Based Expense Ratio	Debit or Purchasing Card?
Alabama	Enable Savings Plan Alabama	NO	NO	0.50%-0.56%	YES
Alaska	Alaska ABLE Plan	NO	NO	0.34%-0.38%	NO
Arizona	AZ ABLE	YES	NO	0.19%-0.34%	YES
California	CalABLE	NO	NO	0.00%-0.54%	NO
Colorado	Colorado ABLE	NO	NO	0.34%-0.37%	YES
Delaware	DEPENDABLE	NO	NO	0.34%-0.37%	YES
District of Columbia	DC ABLE	NO	NO	0.34%-0.37%	YES
Florida	ABLE United	YES	NO	0.035%-0.29%	NO
Georgia	Georgia STABLE	YES	NO	0.19%-0.34%	YES
Illinois	Illinois ABLE	NO	NO	0.34%-0.38%	NO
Indiana	INvestABLE Indiana	NO	NO	0.34%-0.37%	YES
Iowa	IAble Plan	NO	YES	0.34%-0.38%	NO
Kansas	Kansas ABLE Savings Plan	NO	NO	0.34%-0.38%	NO
Kentucky	STABLE Kentucky	YES	NO	0.19%-0.60%	YES
Louisiana	LA ABLE	YES	NO	0.07%-0.14%	NO
Maryland	Maryland ABLE	NO	YES	0.30%-0.3781%	YES
Massachusetts	Attainable Savings Plan	NO	NO	0.57%-0.93%	YES
Michigan	MiABLE	NO	YES	0.50%-0.78%	YES
Minnesota	Minnesota ABLE Plan	NO	NO	0.34%-0.38%	NO
Missouri	MO ABLE	YES	YES	0.19%-0.34%	YES
Montana	Montana ABLE	NO	YES	0.34%-0.37%	YES
Nebraska	Enable Savings Plan	NO	YES	0.50%-0.56%	YES
Nevada	ABLE Nevada	NO	NO	0.34%-0.38%	YES
New Hampshire	STABLE New Hampshire	YES	N/A	0.19%-0.34%	YES
New Mexico	ABLE New Mexico	YES	NO	0.19%-0.34%	YES
New York	NY ABLE	YES	NO	0.40%	YES
North Carolina	NC ABLE	NO	NO	0.34%-0.38%	YES
Ohio	Stable Account	NO	YES	0.19%-0.60%	YES
Oklahoma	Oklahoma STABLE	YES	NO	0.19%-0.34%	YES
Oregon	Oregon ABLE Savings Plan	YES	YES	0.30%-0.38%	YES
Oregon	ABLE for ALL Savings Plan	NO	YES	0.30%-0.38%	YES
Pennsylvania	PA ABLE	NO	NO	0.34%-0.38%	YES
Rhode Island	RI’s ABLE	NO	NO	0.34%-0.38%	NO
South Carolina	SC ABLE Savings Program	YES	YES	0.19%-0.34%	YES
Tennessee	ABLE TN	NO	NO	0.35%-0.62%	NO
Texas	Texas ABLE	YES	N/A	0.25%-0.65%	NO
Vermont	Vermont ABLE	NO	NO	0.19%-0.60%	YES
Virginia	ABLEAmerica	NO	YES	0.40%-0.85%	YES
Virginia	ABLEnow	NO	YES	0.37%-0.40%	YES
Washington	Washington State ABLE Savings Plan	YES	NO	0.30%-0.3702%	YES
West Virginia	WV ABLE	YES	NO	0.19%-0.34%	YES
Wyoming	WY ABLE	YES	N/A	0.19%-0.34%	YES

Obviously, there are a lot of variables at play when it comes to ABLE accounts, so if you have further questions you can get more information from the Social Security Administration here.

Listen to Clark Howard talk about ABLE accounts in this episode of the The Clark Howard Show podcast: