TurboTax / Tax Calculators & Tips / All Tax Guides / Tax Deductions and Credits / What are ABLE Accounts? Tax Benefits Explained

What are ABLE Accounts? Tax Benefits Explained

Updated for Tax Year 2015


OVERVIEW

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.


Why ABLE accounts were created

Congress authorized ABLE accounts in the Achieving a Better Life Experience Act of 2014. Supporters of the law pointed out that the U.S. tax code provided significant tax benefits to parents who save money for their children's college education in 529 plans, which are named for the section of the tax code that describes them.

But parents of people with disabilities had no similar way to save for their children's future needs, such as occupational therapy or assisted living. Further, families that did try to save money for such things ended up costing their children access to government assistance. The ABLE Act amended Section 529 in an effort to correct this.

Setting up an ABLE account

Although the federal tax code allows for ABLE accounts, it's up to the states to actually set up and administer the programs -- just as the states administer 529 programs. When you contribute money to 529 plans, the state invests the money on your behalf. Unlike with a typical IRA or 401K, you can't dictate how the money is invested outside of making choices as to how aggressive or conservative the money is to be invested, within limits.

As of 2015:

  • An individual can contribute up to $14,000 a year to any ABLE account
  • A disabled individual can be named as the beneficiary of only one ABLE account
  • The person must have been blind or disabled before age 26 to qualify

Tax benefits of ABLE accounts

Contributions to an ABLE account are not tax-deductible, but all investment earnings remain untaxed as long as money taken from the account is used for "qualified disability expenses." Such expenses include, among other things:

  • Medical treatment
  • Education, tutoring and job training
  • Special-needs transportation
  • Assistive technology
  • Housing
  • Legal and administrative fees


As with education 529 plans, taxes apply if money is withdrawn from an ABLE account for something other than qualifying expenses. Usually, the beneficiary will have to:

  • Pay income taxes on the portion of the withdrawal that consists of investment earnings, as opposed to contributions
  • In addition, a 10% tax penalty will apply

Accounts not counted as assets

A key feature of ABLE accounts is that the first $100,000 in an account is not treated as personal assets of the account's beneficiary. This is important because federal law generally bars individuals from receiving assistance such as Medicaid, housing aid and Supplemental Security Income if they have more than $2,000 worth of financial assets.

Severely disabled individuals often need these government services, especially after their parents die or can no longer care for them. Advocates for the disabled have long argued that the $2,000 cutoff effectively punished those whose families planned ahead.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • Filing Deadline: IRS filing deadline for tax year 2015 is April 18, 2016 (except for residents of Massachusetts or Maine, where the IRS filing deadline for tax year 2015 is April 19, 2016).
  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with efile and direct deposit; tax refund timeframes will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except the TurboTax Home & Business/QuickBooks Self-Employed bundle offers.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice service is available via phone for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2014 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.