Investment opportunities with tax benefits are available for individuals with disabilities through ABLE accounts.
In 2025, an ABLE account, a tax-advantaged savings and investment account for eligible individuals with disabilities, will allow an annual contribution of up to $19,000. This account offers a variety of investment options, providing flexibility for account holders to select funds that match their financial goals and risk tolerance.
Eligibility and Qualification
To be eligible for an ABLE account, an individual must have a disability that began before they turned 26 years old. This can be confirmed through a licensed medical doctor's letter stating the disability. If you receive Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) due to a disability before age 26, you are automatically eligible.
Investment Options
ABLE programs, which vary by state, offer a range of investment options. For example, the Iowa ABLE (IAble) program provides seven risk-based asset allocation options, including an aggressive option with approximately 90% stocks and 10% bonds, and a moderately aggressive option with about 75% stocks and 25% bonds. Other options range from moderate to conservative, with higher allocations to bonds, money market funds, or high-yield savings accounts, and lower stock exposure.
In addition, many programs offer a checking account option, and the number of investment options per program typically ranges from about four to ten.
Qualified Disability Expenses
Withdrawals from an ABLE account are tax-free when used for qualified disability expenses such as education, housing, transportation, healthcare, and other related costs. Examples of qualified disability expenses include education, housing, transportation, health care expenses, assistive technology, and daily living needs, including food.
Fees and Contribution Limits
Fund fees, or the costs automatically deducted from your funds by the investment company, are generally in the 0.25 to 0.50 percent range for many states' plans. Contributions to an ABLE account can grow tax-free, and there is an initial minimum contribution requirement to open an account, which is about $25 to $50 in most states.
Certain state programs offer a state tax deduction for contributions made to your ABLE account. It's advisable to compare the investment options offered by the particular state's ABLE program, as details and available funds can differ.
Public Benefits and ABLE Accounts
One of the key benefits of ABLE accounts is that they allow people to save and invest money without losing eligibility for certain public benefits like SSI or Medicaid. Up to $100,000 in an ABLE account doesn't count against resource limits that determine public benefit eligibility.
Contributions and Tax Benefits
If you're working and your employer doesn't offer a retirement plan like a 401(k), you can make an additional contribution up to $15,650 from your earnings into your ABLE account. The limit is higher for residents of Alaska ($19,550) and Hawaii ($17,990). Anyone can make contributions to an ABLE account, including the account holder, friends, family, an employer, or a Special Needs Trust.
The tax benefit of an ABLE account is similar to a Roth IRA, where after-tax dollars go in, and the money accumulates tax-free. Many state ABLE accounts still maintain fees, including an annual maintenance fee that can range from $15 a year to $58.
In conclusion, ABLE accounts offer a valuable tax-advantaged savings and investment option for eligible individuals with disabilities. By understanding the eligibility criteria, investment options, qualified disability expenses, fees, and public benefits associated with ABLE accounts, individuals and their families can make informed decisions about this valuable financial tool.
Personal finance-wise, individuals can consider contributing to an ABLE account, a tax-advantaged investment tool, with an annual maximum of $19,000 in 2025. For those planning their investments, it's essential to explore the various risk-based asset allocation options provided by ABLE programs, such as the aggressive and moderately aggressive options offered by the Iowa ABLE program.
