Tax-free savings plans for people with disabilities

States across the nation are beginning to offer an investment account for people with disabilities. It’s similar to the 529 college savings plans. The first states to offer the plans were Pennsylvania, Ohio, Florida, Virginia and Nebraska.

Achieving a Better Life Experience (ABLE) accounts allow those with disabilities and their families to invest money and withdraw it later, with tax free earnings, for housing, education, transportation, health care and employment training.

A key feature of the plans: having the savings won’t disqualify people from valuable federal benefits, such as Medicaid.

Before ABLE, people with disabilities became ineligible for federal benefits, such as SSI and Medicaid, if they had more than $2,000 in cash and property, $3,000 for couples.

An ABLE account allows tax-free withdrawals for a wide range of expenses, but if withdrawals are used for unqualified purposes, the earnings will be taxed as regular income.

To qualify for ABLE, the beneficiary’s disability must have begun before age 26. Up to $14,000 can be deposited in an ABLE account yearly. If the savings account balance reaches $100,000, the owner will no longer be eligible for federal benefits.