The ABLE Act Gives Americans with Disabilities New Opportunities to Save

On December 19, the president signed the Achieving a Better Life Experience (ABLE) Act into law. The ABLE act will help promote savings among Americans with disabilities. In passing the ABLE Act, Congress has, in a small way, simplified the work of BPC’s Commission on Retirement Security and Personal Savings, which is tackling a broad set of issues that affect the ability of individuals to save, including the onset of disability. This new program represents a step forward in terms of the ability of Americans with disabilities to better support themselves.

Under the new law, eligible Americans with disabilities, family members, and friends could make deposits (up to a $14,000 total annual limit) into “ABLE accounts,” which will be a new class of the existing 529 accounts (overseen by the states and offered by private-sector financial companies) that are designed to facilitate saving for higher education. Earnings on contributions to ABLE accounts (made out of after-tax dollars) will be free of taxation as long as the funds are used for qualified expenses including health care and wellness, housing, education, and transportation. Eligibility for the program will be limited to Americans who are eligible for Social Security or Supplemental Security Income benefits based on a disability that occurred before age 26. People with disabilities that occurred after that age will not be eligible to open an ABLE account.

Importantly for millions of Americans with disabilities, funds in ABLE accounts will be disregarded when considering eligibility for many federal assistance programs, including Supplemental Security Income and Medicaid, which provides long-term services and supports to many Americans with disabilities.

The favorable treatment of the accounts for tax and benefit-eligibility purposes will cost the federal government about $2 billion over a decade. The legislation that enacted ABLE accounts included a variety of unrelated provisions that will more than offset this cost. This bill will significantly improve the ability of Americans with disabilities to save, and is also a prime example of how broad, bipartisan agreement can coalesce around good ideas whose time has come.

Alex Gold served as a policy analyst for BPC’s Economic Policy Project.

This post was updated on December 22, 2014.