Millions of Americans became eligible to open an ABLE account on Jan. 1. These accounts offer tax advantages for people with disabilities. A new law raised the age limit to 46, making 14 million more Americans eligible. Justine Chichester, paralyzed from a fall, opened her account this week, calling it a game-changer for finances.
ABLE accounts allow tax-free withdrawals for disability-related needs. Investment growth is tax-free and won’t affect public benefits. You can save for retirement in these accounts. To qualify, you must have a disability that began before age 46. States offer different account features and limits, and some don’t require residency.
Funds in ABLE accounts can cover a range of disability expenses. Withdrawals for qualified expenses have no penalties or age restrictions. Nonqualified expenses may incur taxes and penalties. Some states may claim remaining funds for Medicaid after the account owner dies, but this won’t deter the benefits of the accounts.
Chichester plans to use her ABLE account to support her financial independence. There are no federal tax deductions for contributions, but some states offer tax breaks. To get started, check your state’s plan online. Contributions to these accounts can come from anyone, and rollovers from 529 plans are allowed.
The annual contribution limit for ABLE accounts in 2026 is $20,000, with additional contributions for account holders with jobs. While there are overall limits for contributions, the money can be used for various disability expenses. Some states offer employer tax credits for contributions to employees’ accounts.
ABLE accounts are a crucial savings tool for people with disabilities. Eligibility has expanded, allowing more Americans to access this flexible, tax-advantaged option. Despite some drawbacks like withdrawal rules and potential Medicaid payback, the benefits far outweigh the concerns. Start with your state’s plan and consider transferring between plans if needed.
Read more at Yahoo Finance: Newly expanded ABLE accounts create ‘powerful retirement’ tool for millions of disabled Americans