What's Happening?
Starting January 1, 2026, an estimated 6.1 million additional Americans will become eligible to open and contribute to Achieving a Better Life Experience (ABLE) accounts. These tax-advantaged investment accounts, established by Congress in 2014, are designed
to help Americans with disabilities save for qualified expenses such as education, housing, and healthcare without affecting their eligibility for Medicaid or Social Security income. The eligibility expansion is due to the ABLE Age Adjustment Act passed in 2022, which raises the age limit for qualifying medical conditions from 26 to 46. This change increases the total number of eligible Americans to approximately 14 million. ABLE accounts function similarly to Roth IRAs, allowing contributions with after-tax dollars and tax-free growth on investments. Withdrawals for qualified expenses are not taxed, although non-qualified withdrawals incur income tax and a 10% penalty.
Why It's Important?
The expansion of ABLE accounts is significant as it provides a broader financial planning tool for individuals with disabilities, enabling them to save more effectively without jeopardizing essential benefits like Medicaid and Supplemental Security Income. This change could lead to increased financial independence and security for millions of Americans, allowing them to plan for long-term needs and unexpected expenses. By raising the age limit, the legislation acknowledges the diverse onset of disabilities and provides a more inclusive financial resource. The ability to save up to $100,000 in an ABLE account without losing benefits is particularly crucial, as it offers a substantial buffer against financial instability for those who rely on government assistance.
What's Next?
As the eligibility criteria for ABLE accounts expand, financial institutions and state programs managing these accounts may see increased participation and demand for related services. States offering ABLE accounts might enhance their programs to attract more participants, potentially introducing additional benefits such as state income tax deductions for contributions. Financial advisors and disability advocates are likely to play a key role in educating eligible individuals about the benefits and management of ABLE accounts. This expansion may also prompt further legislative efforts to improve financial tools and resources for people with disabilities, fostering greater economic inclusion and empowerment.
