Building Your Assets and Wealth

ABLE Accounts

A tax-free ABLE account lets people with disabilities save money without affecting their benefits. It also allows family and friends to give them money to use for a variety of expenses.

If you have a disability that meets Social Security’s standards (there are separate disability standards for children or youth, for adults, and for blindness) and your disability began before you turned 26, you can open an ABLE account. This can help you:

  • Build assets in an account that has tax advantages. Your investments in an ABLE account won’t be taxed, so your wealth will grow faster. Plus, If you work and save earned income in your ABLE account, you may qualify for the federal Saver’s Credit.
  • Use your savings on many types of expenses. There are rules about spending the money in your ABLE account, but there’s also a lot of flexibility.
  • Save up money without losing benefits. Many benefits programs have resource limits, but:

The bottom line: An ABLE account means that you can save up money without losing your benefits. It also allows family and friends to give you money without affecting your benefits.

ABLE account rules are introduced below and covered in detail in DB101's ABLE Accounts article.

Does your disability qualify?

You definitely qualify for an ABLE account if you get benefits like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Childhood Disability Benefits (CDB), Health First Colorado (Medicaid) (based on your disability), or the Health First Colorado Buy-In Program For Working Adults With Disabilities (Medicaid Adult Buy-In), because they all use SSA's disability standards (there are separate standards for children or youth, for adults, and for blindness). If you don’t get disability-based benefits, you may be able to “self-certify” (with a doctor's letter) that your disability meets SSA’s standards.

Opening an ABLE Account

An ABLE account is easy to set up, and you don't need a lawyer or other advisor. You can open your own ABLE account or, if needed, it can be opened for you by a parent, a legal guardian, or someone with a valid power of attorney.

Some states offer ABLE accounts and others don’t. Colorado's ABLE account program is Colorado ABLE.

If you qualify for an ABLE account, you can open one in any state that offers a nationwide program. Although you can only have one ABLE account at a time, you can switch your ABLE account from one state program to another. The ABLE National Resource Center lets you see the ABLE account options in different states, compare programs from three different states, or search by ABLE account features.

Rules about ABLE Account Money

There are two limits on how much can be put in an ABLE account in a calendar year:

  • Up to $16,000 from any source (including your family and friends, your benefits, and other unearned income
  • Another $12,880 from your own earned income (if you have a job).

Note: This means that if you earn $12,880 or more, you could have a total of up to $28,880 go into your ABLE account in a year. If you earn less than $12,880, the most you can contribute is equal to the amount you earned that year plus $16,000.

Important: Colorado ABLE will automatically stop accepting deposits for the rest of the year once $16,000 has been deposited in the account (unless you submit paperwork to deposit more than that amount). Not every state does this automatically, so if you have your ABLE account in a different state, you may need to keep good records, to make sure that too much money isn’t put into your account.

The money in an ABLE account must be used for certain qualified expenses, like basic living expenses, health and wellness, education, job training, or housing. Many expenses qualify. It's your job to make sure an expense qualifies, and to keep records of how you use your ABLE account money.

If you take money out of an ABLE account but do not use it for qualified disability expenses, you might have to pay income tax on it plus a 10% penalty, and it could affect SSI and other benefits.

Learn more about the rules for spending ABLE money in DB101's article on ABLE Accounts.

ABLE accounts and Special Needs Trusts

An ABLE account:

  • Is easier (and cheaper) to open and manage than a trust
  • Provides tax benefits (as long as any money withdrawn is spent on qualified disability expenses)
  • Gives you more control and more choices
  • Lets you use the money for housing expenses without making SSI benefits go down
  • Can be opened after age 65
  • Can be used to pay for basic living expenses
  • Can accept up to $16,000 in total deposits each year

A Special Needs Trust:

  • Has no limits on contributions
  • Does not require that your disability began before you turned 26
  • Any money left in the trust when you die does not have to be used to repay Health First Colorado (Medicaid), if the trust was set up by someone other than you (a Third Party Trust), with their money
  • The money in a Special Needs Trust does not have to be spent on qualified disability expenses, but it can't be used for housing or basic living expenses.

The bottom line: Because of the limits on contributions to an ABLE account, you cannot replace a trust with an ABLE account. Instead, use them both as part of your overall asset-building strategy.

If you have an ABLE account and work:
  • You can put up to an extra $12,880 of your earnings into your account (on top of the regular $16,000 that is allowed). The $12,880 must be from your own earnings – it cannot be contributions from others or money you get from benefits or other unearned income.
    • Note: This means that if you earn $12,880 or more, you could have a total of up to $28,880 go into your ABLE account in a year. If you earn less than $12,880, the most you can contribute is the amount you actually earn that year plus $16,000.
  • You may qualify for the Saver’s Credit when you file your federal taxes.
  • The Colorado ABLE program will automatically stop accepting deposits for the rest of the calendar year once $16,000 has been deposited in the account (unless paperwork is submitted to deposit more than that amount). However, not every state ABLE program does this automatically. If you have your ABLE account in a different state, you might need to make sure that too much money isn’t put into your account each year (even if it is other people making the deposits). Check with your ABLE program if you have questions about this.

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