ABLE (Achieving a Better Life Experience) accounts offer people with disabilities a great, tax-free way to accumulate money without jeopardizing their qualifications for Supplemental Security Income (SSI) and other means-tested programs. Withdrawals are tax-free as long as the money is used for “qualified disability expenses.” The arguments for starting and maintaining such funds are overwhelming, not least of which is the wide variety of things on which the money can be spent.
To build 529A ABLE accounts, beneficiaries (and other contributors) can put up to $16,000 total into these funds each year. Other restrictions apply. Only those whose disabilities were diagnosed before turning 26 are eligible for an ABLE savings plan. The total value of the account must remain below $100,000 for the beneficiary to qualify for government benefits. Also, the money must be spent only on items, services and activities that the Internal Revenue Service (IRS) deems qualified disability expenses (QDEs).
The ABLE Act, passed by Congress in 2014, originally defined QDEs as:
- education, housing, transportation
- employment training and support
- assistive technology and personal support services
- health, prevention, and wellness
- financial management and administrative services
- legal fees
- expenses for oversight and monitoring
- funeral and burial expenses
The language of the Act concludes this list with: “and other expenses which are approved by the Secretary under regulations and consistent with the purposes of this section.”
Subsequent regulations and recent revisions by the Social Security Administration (SSA) and the IRS have expanded the list. As of 2022, for instance, the SSA has determined that food qualifies as a QDE, whether in the form of groceries or restaurant meals. ABLE money can also go toward vacations.
To clarify the purpose of ABLE accounts, the Treasury Department and IRS issued a bulletin in 2015 to the effect that “qualifying disability expenses” should be “broadly construed” to include any benefit related to the designated beneficiary “in maintaining or improving his or her health, independence, or quality of life.”
“There is no complete list of QDEs, but the category is very broad, including any expense paid for the benefit of the eligible beneficiary,” Juliana Crist, senior consultant at AKF Consulting, an advisor to state-run municipal plans, told Investopedia.
The ABLE National Resource Center offers advice on what to spend ABLE funds on and when, stressing that an expenditure need not be disability related. Need a car? That’s eligible, as is a smartphone. As noted above, education qualifies, as does anything needed for classes, such as books and a laptop.
It is always best to use ABLE funds on those things that are explicitly described as QDEs, while using money from other sources for those things that might not qualify. The ABLE National Resource Center advises using public benefits for key expenditures, reserving ABLE funds for those things less likely to be covered by such things as Medicaid. Experts advise keeping records on what you have spent ABLE funds, should the IRS decide to include you on one of its random audits. Misuse of ABLE account funds could result in tax penalties and possible loss of public benefits.
But the rationale for starting and building an ABLE account is compelling — and keeping the account growing more so, as more items are included in allowable expenditures. Before you open an ABLE account for yourself or a family member with disabilities, or if you have questions on how the money should be spent, be sure to consult with your special needs planner.
For a directory of state ABLE account programs, click here.