An ABLE account is an often-overlooked tax-advantaged investment account for people with disabilities. If you receive government benefits, these accounts can be a great way to avoid running afoul of needs-based asset limits.
But even if you’re not on SSI, SNAP or Medicaid, you can use an ABLE account to invest for your future — and save money on taxes at the same time.
What makes ABLE accounts so great for investing?
ABLE accounts give investors with disabilities flexibility. A lot of flexibility. As the account holder, you can withdraw money tax-free for almost anything.
Many investment accounts offer a tax break, so ABLE accounts aren’t unique in that respect. There are IRAs and 401(k)s for retirement, 529 plans for college, even health savings accounts (HSAs) for medical costs. But all those other accounts come with restrictions.
Here’s a few examples of limits imposed by those other accounts:
- 401(k): You’ll face a 10% tax penalty for withdrawals before age 59.5.
- Traditional IRA: You’ll owe income tax on any withdrawals in retirement.
- Roth IRA: You can withdraw your contributions at any time, but you’ll owe a 10% penalty for withdrawing earnings before age 59.5.
- 529 plan: Withdrawals for non-qualified educational expenses are subject to a 10% penalty and income taxes.
- HSA: 20% tax penalty for non-qualified medical expenses prior to age 65.
Here’s how an ABLE account is different
Unlike those other tax-advantaged investment accounts, you won’t owe the IRS money for making withdrawals before a certain age or face a penalty if you don’t use the money for a specific, narrow purpose.
What is a qualified disability expense, anyway?
An ABLE account offers a unique opportunity to grow your investments tax-free while also enjoying tax-free withdrawals for qualified disability expenses.
So what is a qualified disability expense? Anything that improves or maintains the account holder’s quality of life — an extremely broad list.
A few examples of qualified disability expenses include:
- Education
- Housing
- Transportation
- Health care expenses
- Assistive technology
- Daily living needs, including food
Here’s a full list of qualified disability expenses.
You can think of an ABLE account like a Roth IRA for disabilities. You contribute after-tax dollars, and your investments grow tax-free. So long as you spend it on a qualified disability expense, that money stays tax free.
The breadth of these tax-free withdrawals makes ABLE accounts stand out from the crowd. You can use it to save for retirement, buy a home or start a business. The possibilities are endless.
Who can open an ABLE account?
As long as you were diagnosed with a significant disability prior to age 26 (soon to be age 46 starting in 2026), you qualify to open an ABLE account.
That’s my situation. I was diagnosed with cone dystrophy, a rare retinal disease, when I was 22 years old, but I didn’t open my ABLE account until this year, when I was 31 years old.
To qualify for an ABLE account, your disability must be considered significant. There are two ways to meet this requirement:
- Receiving SSI or SSDI: If you were diagnosed with a disability before turning 26 and are currently receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), you automatically qualify.
- Doctor’s certification: A licensed medical professional can provide a letter confirming that you have a disability that began before age 26.
The good news is that most ABLE programs simply require you to self-certify that you have a disability and are eligible to open an account. This generally means you don’t need to provide medical records or diagnoses when submitting your application.
However, it’s important to note that you may need to provide proof of your disability if requested by the IRS or your state’s ABLE program.
Each state administers its own ABLE account program. Here’s a list with links to each state’s ABLE program.
How I’m using my ABLE account
I’m using my ABLE account to save money for a home.
Not all my money for the down payment is getting invested. My goal is to allocate 60-70% of the money to a high-yield savings account and CDs, and invest the rest of the money in my ABLE account so it can grow.
Generally, you want to keep your money invested for at least three years. Otherwise, you run the risk of the market being down when you need to withdraw the funds.
I figure it will take me about three years or so to save up all the money. So while I’m keeping a majority in an FDIC-insured bank account, the rest I’m funneling into my ABLE account.
Later, when I need to withdraw the money, I won’t owe income tax on the gains and I won’t owe the IRS a penalty. I’ll be able to put the full amount toward my goal.
Final thoughts
There are so many additional costs and financial challenges people with disabilities face. (Check out my post on how being blind is expensive.)
An ABLE account gives us a unique opportunity to grow our wealth — and keep more of our money by offering the best tax breaks of any account out there.
I hope you found this helpful. Please share and let me know what you think. I’ll add more posts soon about how to open an ABLE account, along with how I’m progressing on saving for my goal.