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Using ABLE Accounts to Your Tax Advantage

Using ABLE Accounts to Your Tax Advantage

There are special kinds of savings accounts that allow you to save money tax-free or for significantly reduced tax obligations. One example is an education savings account. These 529 accounts allow families to save money for education in a way that has less tax obligations.


The new Achieving a Better Life Experience (ABLE) accounts work much the same way. These accounts are for families with disabled young people, and they allow them to set aside money for future care with reduced taxes. There are approximately 58,000,000 families in the United States that support disabled individuals. The ABLE account will help provide for these individuals, make a huge impact on families across the United States.


If you have never heard of an ABLE account, you are not alone. ABLE accounts were just authorized in 2014. Your tax preparer can help you set up an account so you can provide for your disabled loved ones in the future. A. L. SIMON can help you claim tax deductions related to this account. We know how important taking care of your loved ones in the future is, so we want you to be able to take to take advantage of this new savings vehicle.

How Can I Use an ABLE Account?

Congress realized that parents were taking advantage of 529 plans to save money for their children’s college, but there was no similar savings plan for parents who had disabled children. They were not able to save in a way that had similar tax advantages. So, in 2014, Congress created a special kind of 529 plan. Just like educational 529 plans, ABLE plans are created and administered by individual states. The state decides how your money will be invested when you place it in the plan.

Like educational 529 plans, ABLE plans have certain qualifications and limitations.

  • One person can invest up to $14,000 per year in any ABLE account.
  • There can only be one ABLE account per disabled individual.
  • The beneficiary must have been blind or disabled before age 26 to take advantage of these accounts.

If you already receive SSI or SSDI benefits, then you are automatically allowed to establish an ABLE account. Otherwise, you may need to obtain a disability certification from your doctor to set up this account.

The $14,000 limitation is also the same amount as the most that an individual can give to another person without paying a gift tax. If you provide an amount over $14,000, this state may have special treatments for those amounts.

The Tax Benefits of an ABLE Account

All the contributions to an ABLE account are not tax deductible. However, the investment earnings are not taxed as long as the money withdrawn from the account go toward “qualified disability expenses.” These expenses could include:

  • Education, tutoring, or job training
  • Housing
  • Assistive technologies
  • Special needs transportation
  • Legal and administrative fees
  • Medical treatment including dental care

If the funds from this account are not used for these expenses, then they are taxed as if they are income. However, they will only have to pay tax on the amounts that are considered investment earnings and not contributions. They’ll also have to pay a 10% tax penalty.

One of the other beneficial things about these accounts is that the first $100,000 is not treated as personal assets of the account’s beneficiary. That means that when the beneficiary applies for Federal or state benefits that consider their assets, this account will not affect whether they can get public assistance. This includes things like Medicaid, housing assistance, and supplemental security income. Under those programs, if the individual has more than $2000 in assets they cannot qualify. This is especially important for disabled individuals because they often need to use these services for their necessities. Importantly, this allows families of disabled individuals to plan ahead without being penalized by this asset limitation.

Setting Up an ABLE Account

Because these accounts are so new, many states do not have their accounts ready yet. That means that you cannot set up an ABLE account today in most states. However, many programs are expected to be running sometime in 2016, and nearly all of them should be ready by 2017. Look for more information in the upcoming months. Both programs will likely have an online registration that you can use.


Your tax professional will provide you with information about these accounts as soon as it becomes available. A. L. SIMON can help you with these accounts and other 529 plans. Simply use the contact button below to give us a call and speak with one of our experienced tax professionals. You can also find out more about us by clicking on the profile link below.

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