If you are the parent or grandparent of a child with special needs, then saving for college in a 529 likely isn’t on your radar. However, in 2014 congress passed a law specifically expanding the 529 tax code to include a savings vehicle for individuals with diagnosed disabilities. 529 ABLE or 529A accounts allow someone with a diagnosed disability a way to save as an alternative to or in conjunction with a Special Needs Trust (SNT).
What is a 529 ABLE Account?
Achieving a Better Life Experience or ABLE is an account specifically for a person with a diagnosed disability. Like a traditional 529, any investment growth in the account is tax deferred. Additionally, if the funds are withdrawn for certain qualified expenses the earnings are federal income tax free (depending on your state, state income tax may still be assessed).
What Can an ABLE Account be Used For?
ABLE accounts are designed to cover expenses for the benefit of the beneficiary such as housing, employment training, transportation, supportive technology, health related expenses, and basic living expenses. Should the withdrawal not be for qualified expenses, then there is a 10% tax on the withdrawal, plus applicable state/local taxes. If the original contributor received a tax deduction on their state taxes, they may also owe additional taxes.
Will an ABLE Account Disqualify the Beneficiary for Government Assistance?
ABLE accounts do fall under the reportable assets category for the beneficiary. If a beneficiary’s reportable assets remain below $100,000 then there are no adverse effects to public programs like Medicaid or Supplemental Security Income (SSI). ABLE accounts are part of the Medicaid Recapture provision, so upon the death of the beneficiary the state may claim the remaining balance of the account minus any burial/final expenses.
What are the Contribution Limits?
Anyone can contribute to an ABLE account. The annual contribution limit per beneficiary is the current year’s gift tax exclusion amount ($19,000 for 2025). If the beneficiary is working and is not contributing to a retirement plan (employee or employer contributions), they may contribute to their own ABLE account up to the equivalent of the Federal Poverty Level for 1 person ($15,650 for 2025). Some states do allow a deduction on the state income tax return for contributions to a 529 ABLE account.
Who is Eligible for an ABLE Account?
The onset of the disability must have occurred prior to the age of 26 (this goes up to age 46 effective January 2026). The beneficiary must either be receiving SSI/SSDI OR the beneficiary has a condition on the SSA’s list of Compassionate Allowances Conditions OR the beneficiary has a written diagnosis from a doctor. It is not typically required to provide documentation at the time of opening the account, but the ABLE accounts do require certification of eligibility, and the IRS can request proof at any time.
Who Manages the ABLE Account?
The individual with signature authority manages the account and determines when to distribute funds. The person with signature authority may be the beneficiary or another party (Power of Attorney, legal guardian or appointed representative). Note: the representative payee appointed by SSA may not be the individual with signature authority on the ABLE account.
Can a Traditional 529 be Converted to a 529 ABLE?
Funds from a traditional 529 can be rolled over to an ABLE account for the same beneficiary or if the beneficiary is a family member. Rollovers are limited to the annual contribution limit ($19,000 in 2025).
Should I Open a 529 ABLE Account?
It is best to consult your Estate Attorney or an attorney specializing in special needs planning to help determine which account or combination of accounts is the best fit for your family’s situation. Government benefits, account limits, contribution limits, associated fees and how the funds will be used are all factors when making these decisions.
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