ABLE accounts expanding: Here's what to know

Key Concepts

• ABLE Account (Achieving a Better Life Experience)
• Supplemental Security Income (SSI)
• 529 Savings Plan
• Disability-related expenses
• Gift Tax Exclusion
• Tax-free growth and withdrawals

What is an ABLE Account?

• An ABLE account is a savings and investment account specifically designed for individuals with disabilities.
• It allows them to save and invest up to $100,000 without jeopardizing eligibility for key government benefits like Supplemental Security Income (SSI).
• Funds grow tax-free, and withdrawals are also tax-free at the federal and state levels, provided they are used for qualified disability-related expenses.

ABLE Account Eligibility and Expansion

• Originally, eligibility required receiving Social Security disability benefits or Supplemental Security Income (SSI), or having a physician's statement confirming the disability began before age 26.
• Starting January 1st, 2026, the age of onset for disability eligibility will increase to 46.
• This expansion is expected to increase the number of eligible individuals by roughly 50%, potentially adding an estimated 15 million people.

State Programs and Availability

• The federal law created the ABLE program, but individual ABLE accounts are established and managed by states, similar to 529 savings plans.
• Currently, 46 states and Washington, D.C. have ABLE account programs.
• Some state plans, like Virginia's, are open to out-of-state residents.

Contribution Limits

• There are annual contribution limits to ABLE accounts, tied to the annual gift tax exclusion.
• In the current year, the contribution limit is $19,000.
• This limit is expected to increase with inflation in future years.

Impact of New Tax Laws

• A significant change involves 529 plans (education savings plans).
• The new tax law allows individuals to roll over funds from a 529 plan into an ABLE account if the beneficiary has a disability, especially if the disability occurs later in life.
• This provides an alternative use for 529 plan funds if the beneficiary does not pursue higher education.

Real-World Application: 529 Plan Rollover

• Example: A family has a 529 plan set up for their child, but the child later develops a disability and does not attend college.
• Previously, the family might have faced penalties for withdrawing the funds for non-educational purposes.
• Now, they can roll over the 529 plan into an ABLE account, allowing them to use the funds for disability-related expenses without penalty.

Data and Statistics

• Approximately 8 million people currently have ABLE accounts.
• Total assets in ABLE accounts are around $2.5 billion.

Conclusion

ABLE accounts offer a valuable financial tool for individuals with disabilities, allowing them to save and invest without jeopardizing essential government benefits. The upcoming expansion of eligibility to those whose disabilities began before age 46, coupled with the ability to roll over 529 plans, significantly enhances the accessibility and utility of these accounts. The speaker encourages viewers to subscribe to her "Free Money 101 Newsletter" for more savings strategies.