What Are ABLE Accounts?
ABLE stands for Achieving a Better Life Experience. ABLE accounts are specifically designed to allow qualifying individuals with disabilities to save money without losing eligibility for government benefits. ABLE accounts provide an inexpensive and uncomplicated way to save funds for many individuals with disabilities.
Before ABLE accounts became available, “special needs trusts” (SNTs) were the primary means of saving for disability-related expenses while remaining eligible for programs like SSI. ABLE accounts are easier and less expensive to set up and maintain than SNTs, and they provide additional benefits in terms of management and use of funds for housing and food. However, SNTs are still useful, and a person may have both an ABLE account and an SNT.
Benefits of ABLE Accounts
Savings without the loss of SSI and other benefits
There are very specific rules for SSI eligibility regarding both income and resources. Distributions from ABLE accounts are generally excluded for SSI income, and funds in ABLE accounts (up to $100,000) are generally excluded from SSI resource limits.
Tax-free earnings and distributions
ABLE accounts can be invested and earn interest, dividends, and capital gains on those investments. Typically, these funds would be subject to income taxes the year they occur. In ABLE accounts, those earnings are not taxed as they are earned; they grow tax-free. When you take money out of the ABLE account, there will be no tax as long as the distributions are used for Qualified Disability Expenses (QDE).
Gifts made to the ABLE account are not included as income for SSI
Income (both earned and unearned) can adversely impact an individual’s eligibility for Supplemental Security Income (SSI). Even gifts for birthdays, graduation, etc. can reduce or eliminate your monthly SSI payment in the month you receive them. However, gifts made DIRECTLY to an ABLE account are not considered income. Thus, you might choose to ask that cash gifts be made directly to your ABLE account (and cannot exceed the annual contribution limit for the ABLE Account owner.
In fact, the Pennsylvania ABLE program provides you with a unique code that you can share with family and friends. Using this code, individuals can send money directly to your ABLE account. These transfers are applied to your annual contribution limit ($17,000 in 2023) and your total account limit ($100,000 for SSI eligibility), but any person may make a contribution to your ABLE account, no matter what state the gift-giver lives in. Again, to avoid SSI income limitations, the gift must be made directly to the ABLE account.
Tax benefits for contributions to ABLE accounts available in some states
In addition to the benefits listed above, some states offer some level of tax deduction for ABLE account contributions. For example, in Pennsylvania, each ABLE account contributor may deduct up to $17,000 from Pennsylvania income taxes for ABLE account contributions. While this does not impact federal income taxes, a Pennsylvania resident who contributes $17,000 to an ABLE account will enjoy tax savings of $521.90 (3.07% of $17,000).
Note that this deduction is only available to Pennsylvania residents who contribute to a Pennsylvania ABLE account.
Not included on your FAFSA
ABLE account funds are not counted on your FAFSA (Free Application for Federal Student Aid). This is a significant benefit and can increase the chances that the ABLE account owner will qualify for financial aid.
In contrast, “529 plans,” popular savings plans for college not tied to disability ARE counted in determining eligibility for financial aid. However, 529 plans can be “rolled over” into an ABLE account, so long as the annual contribution limit ($17,000 in 2023) is not exceeded.
Eligibility for an ABLE Account
- Must meet the Social Security definition of disability
- If you receive SSI or SSDI and meet the age of onset requirement, you are qualified.
- If you would qualify for SSI or SSDI based on disability (but do not meet other requirements for those programs, such as income and resource limits)
- Alternatively, a person will qualify for an ABLE account if that person “has filed a valid disability certification with the Secretary of the Treasury” for the current tax year
Age of disability onset
- Must have met the disability requirement before reaching the age of 26
- If older than 26, must prove that disability occurred before 26th birthday
- Note: in January of 2026, the maximum age of onset for ABLE account eligibility rises to 46
Authorized to open the account
- A beneficiary age 18 or older OR
- An Authorized Legal Representative (ALR) for the beneficiary
- If the beneficiary is older than 18, must be an individual who has been appointed as “Power of Attorney, Legal Guardian, or Conservator for the Beneficiary.
- Can be a parent if the beneficiary is younger than 18
How Can ABLE Account Funds Be Spent?
Qualified Disability Expenses (QDEs)
ABLE account funds can be spent on a wide variety of items, such as:
- Employment training and support
- Assistive technology and related services
- Personal support services
- Prevention and wellness
- Financial management and administrative services
- Legal fees
- Expenses for ABLE account oversight and monitoring
- Funeral and burial
- Basic living expenses
Expenses that fit into any of these categories are considered qualified disability expenses (QDEs). ABLE account distributions for QDEs are tax-free and do not affect SSI eligibility.
Getting money out of your ABLE account
Different state ABLE accounts provide different ways of withdrawing your ABLE funds for QDEs. Most plans offer withdrawals by check and electronic transfer to a bank. The Pennsylvania ABLE account offers several methods for withdrawing funds, including electronic transfers to a bank account or for automatic bill pay, paper withdrawal form, debit card, and checks. Please note that some of these methods have fees associated with them, so you’ll want to determine which method is best for you.
ABLE distributions are not income
There are strict limits on the amount of income an individual can receive while receiving SSI. However, distributions from an ABLE account are not included as income. It doesn’t matter whether it is a qualified distribution or not; ABLE account distributions are NOT income for SSI purposes.
SSI considers ABLE account distributions a change in resources. The rules are quite specific and the type of expense is part of the determination of whether the distribution counts as an SSI resource.
How Much Money Can Go into an ABLE Account?
All ABLE accounts have an annual contribution limit ($17,000 in 2023). You may contribute less than this amount, but you may not contribute more in a single year. This amount is tied to federal gift tax exemption, and it does increase by $1,000 every few years.
Special additional annual contributions
In addition to the annual limit (currently $17,000), some ABLE account owners may make additional annual contributions under the ABLE to Work Act. The additional contributions are permitted when the ABLE account owner is employed and is not participating in an employer-sponsored retirement plan. That working individual may contribute an additional amount equal to the lesser of that person’s gross income that year or the federal poverty level (in 2023, $13,590 in Pennsylvania and most other states). In other words, an individual with an ABLE account can save up to $13,590 in addition to the $17,000 annual contribution limit per year.
ABLE accounts can exceed $100,000. For example, the account limit for Pennsylvania ABLE plans is $511,758.
However, for purposes of SSI eligibility, only $100,000 of the funds in an ABLE account are excluded from resources. Amounts over $100,000 will count toward resources (which are capped at $2,000 for individuals) for SSI eligibility determinations.
How Do I Set Up an ABLE Account?
Follow this link to set up a Pennsylvania ABLE account online. Alternatively, you may download and complete the PA ABLE paper enrollment form and mail it to the address set forth on the form. You may also contact the PA ABLE Plan office by phone at (855) 529-ABLE(2253).
To complete either form, you’ll need some information:
- Date of birth
- Social Security Number for the beneficiary and Authorized Legal Representative (if any)
- Email address (one – will be used for all PA ABLE communications)
- Decision about investment options (PA ABLE account investment options information)
- Bank account information (if electronic funds transfer will be used to fund the account)
If there is an ALR for a beneficiary over age 18, you’ll also need documentation of Power of Attorney, Legal Guardianship, or Conservatorship. If you want to transfer funds from a bank account electronically, you’ll want to have that bank information as well.
What Else Should I Know About ABLE Accounts?
Where can I set up an ABLE account?
Forty-four states, including Pennsylvania, offer ABLE accounts, but you do not need to open an ABLE account in the state you live in. Seventeen states do require that you be a resident in order to set up an ABLE account under their program. However, the remaining 27 states, including Pennsylvania, permit any qualified person to open an ABLE account regardless of residency.
How many ABLE accounts may I have?
No. Each qualified person may only have ONE ABLE account. If you have an ABLE account with one state and want to transfer it to another state, this is permitted, and the ABLE program staff should be able to help you do this.
Investment options available
ABLE accounts offer investment options so that your contributions will increase in value. This growth is tax-free. Different state programs offer different investment choices.
In Pennsylvania, you may choose to leave the funds in an interest-bearing checking account or choose one or more of six investment options.
There are minimums and fees
ABLE accounts cost money to administer. Also, programs may have minimum requirements for setting up an account and for contributions. However, these minimums are usually quite low.
In Pennsylvania, fees and minimums are as follows:
- Annual account fee: $58 (billed at $14.50 per quarter)
- Fee lowered to $33 per year ($8.25 per quarter if you choose only electronic delivery of quarterly statements and account updates)
- Initial contribution minimum: $25
- Minimum contribution (after initial): $25
- Fees for investments (mutual funds): Annual fee of between 0.30% and 0.33% of fund value
- Fee for checking account option: $2 per month; waived if (1) you choose electronic delivery of account information and (2) maintain a minimum deposit of $250 each month.
Words of Warning About ABLE Accounts
Risk of asset forfeiture upon death
If an ABLE account owner dies with money remaining in the ABLE account, a state may file a claim for repayment of medical assistance provided to the ABLE account owner. The state may only make claims for medical assistance provided after the ABLE account was created, and the state cannot claim more money than is in the account.
In Pennsylvania, this is not a major concern at this time.
- Pennsylvania law prohibits claims directly against any PA ABLE account.
- Claims against the PA ABLE account proceeds in an estate are limited to estates of individuals over 55 years old (there are additional limitations as well).
- This will apply only to a small number of persons right now. However, it is something to consider for ABLE account beneficiaries who are close to or older than age 55.
College Scholarship Service (CSS) Profile
While ABLE accounts are not considered assets for college financial aid through the Free Application for Federal Student Aid (FAFSA) form, the same rules do not apply to the College Scholarship Service (CSS) Profile, a private financial aid tool administered by the College Board that charges a fee to use. The CSS Profile counts ABLE accounts as assets. If you are considering applying to a school that requires the CSS Profile, it is advisable to call the Admissions Office to discuss this matter.
Using ABLE funds for unqualified purposes
If you use ABLE funds for expenses that are not qualified [more information at How Can ABLE Account Funds Be Spent?], those distributions will be taxable as income, and there is an additional 10% penalty for distributions not used for qualified disability expenses (QDEs). This can reduce the amount of money available, so it is useful to ensure that you spend your ABLE distributions on QDEs.
Updated as of October 19, 2023.