Understanding ABLE Accounts for People with Disabilities

An ABLE account is a great tool in estate planning for families with disabilities. While it does not replace a Special Needs Trust (SNT), it can be used alongside one to provide more flexibility and support. Many families choose to use both an ABLE account and an SNT. The ABLE account is typically used for daily expenses and personal spending. Meanwhile, the SNT is used for larger gifts or inheritances, and for long-term financial planning that requires more structure and control.

What Is an ABLE Account? Who Is Eligible?

An ABLE (Achieving a Better Life Experience) Account is a tax-advantaged investment account designed specifically for individuals with disabilities. A person can have more than $2,000 in an ABLE Account and still qualify for government benefits, such as SSI (supplemental security income) and Medicaid.

The first $100,000 in an ABLE account does not count toward the strict $2,000 asset limit for SSI and Medicaid. Meaning, a person receiving SSI can have up to $100,000 in an ABLE account without losing their benefits.

Compare: An ABLE account can hold up to $100,000 without affecting a person’s eligibility for benefits. However, an SNT has no limit on how much money it can hold. None of the assets in a properly structured SNT count towards the SSI asset limit.

To be eligible for an ABLE account, the person must have a disability that began before age 26. However, starting January 1, 2026, the age requirement for the onset of a disability will increase to age 46. A qualified doctor must provide a written, signed disability diagnosis certifying that the disability began before the required age, resulting in marked and severe functional limitations.

Who Can Contribute to an ABLE Account? How Much Can Be Contributed?

Anyone can contribute to an ABLE account. This includes: the person with a disability (the beneficiary), family members, friends, and other loved ones.

However, there is a limit to how much can be deposited each year into an ABLE account. In 2025, the limit is $19,000 total, from all sources combined.

Example:

Grandma gives $10,000 to her grandchild’s ABLE account. The child’s parents add another $9,000. That’s a total of $19,000, which is the maximum for the year. No more money can be added to the ABLE account until the next calendar year.

Exception for Workers

There is one important exception. If the beneficiary is working and does not participate in an employer retirement plan (like a 401(k)), they can add more money beyond the $19,000 annual limit. In Louisiana, a working beneficiary can contribute an additional $15,060, on top of the regular $19,000 limit.

How Can ABLE Account Withdrawals Be Used?

Money taken out of an ABLE account must be used for qualified disability expenses (QDEs). These are costs related to the person’s disability that help them maintain or improve their health, independence, or quality of life.

The IRS defines QDEs broadly, so there are many types of allowed expenses. Here are some common examples:

• Housing – rent, mortgage payments, utility bills (electric, water, sewer, internet, etc.)

• Transportation – bus fare, rideshares, car payments, insurance, gas

• Health – doctor visits, therapy, prescriptions, medical devices, mental healthcare

• Education – tuition, books, tutoring, online courses, supplies

• Employment Support – job coaching, training programs, uniforms, tools

• Assistive Technology – hearing aids, screen readers, tablets, computers

• Legal Fees – services related to disability rights, benefits, or guardianship

• Basic Living Needs – food, clothing, personal care items

• Financial Services – help with taxes, budgeting, accounting, or fees

• Funeral or Burials Costs – end of life expenses

What If the Withdrawal Is Not Used For a QDE?

If a withdrawal is not used for a QDE, the IRS will charge a 10% penalty on the withdrawal and apply an income tax to the earnings portion of the withdrawal.

Example:

Suppose a withdrawal from an ABLE account is used to provide a gift to someone other than the beneficiary. This is not a qualified disability expense because it is not used for the benefit of the person with a disability. The IRS will charge a 10% penalty on the withdrawal and can apply income taxes as well.

Note: The IRS does not require pre-approval before making a withdrawal. But, the beneficiary (or their representative) must keep good records of what the money was spent on, receipts, invoices, and why it qualifies as a QDE. This is important in case the IRS ever reviews or audits the account.

How Does an ABLE Account Grow? What Are the Tax Advantages?

An ABLE account can grow over time through investments, much like a 401(k) or other retirement account. When money is added to the account, the account holder or their legal representative can choose how to invest it.

Each state’s ABLE program offers different investment options, which may include stocks, bonds, mutual funds, ETFs (exchange-traded funds), etc. Some portfolios have a higher risk with a chance for higher returns, while others have a lower risk and are more stable. The value of the account may go up or down, depending on changes in the market and how the investments perform.

The big benefit of an ABLE account is that it offers tax-free growth. Earnings grow tax-free inside the account. The withdrawals of the investment earnings are also tax free, if they are used for qualified disability expenses (QDEs). This means families can save and grow money without paying taxes on the growth, as long as it’s used the right way.

Is There a Medicaid Payback?

Yes. If there is money left in the ABLE account when the beneficiary dies, the State may request repayment for Medicaid benefits that were provided. However, the Medicaid Payback only applies to benefits paid by Medicaid after the ABLE account was opened. The State cannot request repayment for benefits given before the account was set up.

Also, before any Medicaid payback is made, the ABLE account can first be used to pay for funeral and burial expenses. But timing is important here, a family must act quickly to use the ABLE account to pay for funeral and burial expenses before making any Medicaid repayment. If the Medicaid repayment is made first, the State will not return any funds for funeral and burial expenses.

What Is the Maximum Amount an ABLE Account Can Hold?

In Louisiana, the maximum allowed balance in an ABLE account is $500,000. This means the account can grow tax-free and be used for QDEs tax-free up to a balance of $500,000. If the account grows over $500,000, no new deposits will be accepted. Any excess money will be returned to the person who deposited it as a non-QDE disbursement, subject to penalties.

Families should be cautious not to max out an ABLE account. Recall that only the first $100,000 of funds in an ABLE account are exempt from the SSI asset limit. While a person can have more than $100,000 in an ABLE account, any amount over $100,000 counts against the SSI asset limit. Once a person goes over the $2,000 asset limit, SSI benefits will be suspended.

For Medicaid, the rules are different with regard to an ABLE account. If an ABLE account balance exceeds $100,000, the person will still qualify for Medicaid. But, if the person has assets outside of an ABLE account that go over $2,000 asset limit, the person may be disqualified from Medicaid.

Caution: Parents should also be cautious in maxing out an ABLE account and keep balances modest because the state is entitled to a Medicaid Payback from an ABLE account. To hold large amounts, a Third Party SNT is a better vehicle, as there is no Medicaid Payback from a Third Party SNT.

How Can an ABLE Account Be Opened?

Opening an ABLE account is simple and does not require an attorney. An ABLE account can be opened by the eligible individual with a disability (the beneficiary). If they are unable to manage the account themselves, it may be opened by an authorized legal representative (like a parent or guardian).

Even if someone else manages the account, the beneficiary is still the legal owner of the account and all the money in it. All withdrawals must be used for the benefit of the beneficiary.

Most ABLE accounts are opened online. You can open an account in any state, even if you don’t live there. However, you are only allowed to have one ABLE account at a time. For Louisiana residents, there are some extra benefits to opening an ABLE account in our home state. There is no fee to open the account in Louisiana, and the minimum deposit is $10. Louisiana also offers a state income tax deduction of up to $2,400 per year for contributions to an ABLE account. Any unused deduction amounts can be rolled over to future years, which allows for additional tax savings over time.

If you are interested in opening an ABLE account in Louisiana, visit: https://www.able.osfa.la.gov.

You may also want to research ABLE programs in other states. Some may offer different investment options or rules that could work better for you.

Conclusion:

An ABLE account is a tool that empowers people with disabilities to save, invest, and spend funds on necessary expenses without sacrificing access to essential federal benefits. Its favorable tax treatment, administrative simplicity, and broad definition of qualifying expenses make it an invaluable part of modern disability planning. As federal and state regulations evolve, ABLE accounts continue to expand financial independence for some of the nation’s most vulnerable individuals.

If you are considering how an ABLE account might complement your broader estate or special-needs plan, Byrd Law is here to help. We can guide you through eligibility requirements and strategic integration with your overall estate plan to ensure your loved one is protected now and in the future. Contact us to discuss how an ABLE account can become a thoughtful and effective part of your planning strategy.