Takeaways

  • While ABLE accounts offer tax advantages for individuals with disabilities, they come with some limitations. These include spending restrictions, annual and cumulative contribution caps, potential Medicaid payback, and age eligibility rules. Nevertheless, establishing one, especially in Pennsylvania, is probably a good idea for most if not all persons with disabilities. But it’s not a substitute for a Supplemental Needs Trust.

In 2014, the Achieving a Better Life Experience (ABLE) Act established tax-advantaged savings accounts for people with disabilities to cover qualified disability-related expenses. With an ABLE account, eligible people with disabilities can put aside savings while qualifying for public benefits such as Supplemental Security Income (SSI).

However, ABLE accounts do have some potential drawbacks to keep in mind.

1. Spending Restrictions

Money in an ABLE account can only pay for qualified disability expenses (QDEs). QDEs broadly encompass basic living expenses and include:

  • Education
  • Food
  • Housing
  • Transportation
  • Employment training and support
  • Assistive technology
  • Personal support services
  • Medical and wellness expenses
  • Financial management
  • Administrative services
  • Legal fees

These spending restrictions do limit what the funds can be used for, restricting personal choice and autonomy to some extent. For instance, you might not be able to use money in an ABLE account to make a gift to a family member or charitable organization, as these fall outside the scope of QDEs.

Entertainment expenses also may not be included. If you go on vacation, account funds can only pay for QDEs associated with the vacation, such as accessible lodging, special transportation, or hiring an aide, per the ABLE National Resource Center.

In addition, detailed records for all expenditures should be kept in case the account holder is asked to verify that an expense met QDE criteria.

2. Annual Contribution Limits

ABLE accounts also have a maximum amount that the account holder and others can put in the ABLE account each year. In 2025, the annual contribution limit is $19,000. This limit applies to the account holder and anyone else putting money into the account, such as family members wanting to make a gift or provide support to the person with a disability. (Note that eligible ABLE account holders who work but do not have an employer-sponsored retirement plan can make additional contributions beyond the yearly limit.)

Suppose an adult with a disability receives a surprise inheritance of $250,000, which could jeopardize their eligibility for public benefits. Because annual ABLE contributions are capped at $19,000 (in 2025), they wouldn’t be able to transfer the full amount into an ABLE account right away. The excess, however, could be protected in a pooled special needs trust.

3. Cumulative Balance Limits

A Pennsylvania ABLE account, in 2025, can hold a maximum of $511,758. But if the account balance exceeds $100,000, it counts as a resource, which will result in suspension of Supplement Security Income (SSI) benefits.  But not all disabled persons receive SSI, such as persons who are eligible for and receive a higher Social Security Disability benefit (SSDI). If you are using an ABLE account to grow investments tax-free, you could risk hitting the threshold if the investments do well.

4. Medicaid Payback

For ABLE account holders receiving Medicaid, Medicaid payback rules generally appl in most states, but not in Pennsylvania. Consequently, PA ABLE accounts that hold a balance after the beneficiary’s death don’t need to reimburse the state for any Medicaid services paid on the beneficiary’s behalf. (Medicaid can only seek reimbursement for services provided after the ABLE account was opened.)

For those concerned about passing on unused funds, it is worth nothing that a tool known as a third-party special needs trust is generally designed to protect assets from Medicaid payback.

5. Age Limit

Under current rules, an individual must have acquired their disability before age 26 to be eligible for an ABLE account. Fortunately, this rule will change as of January 1, 2026, when the eligibility age will shift from age 26 to age 46.

Alternative to ABLE Accounts

An ABLE account can help someone with a disability save money for disability-related expenses while maintaining their access to public benefits such as SSI and Medicaid. However, restrictions about how much money an account can hold before benefits are suspended and how much money can be contributed can make this type of account less helpful for some people.

A special needs trust (SNT) can be an alternative to an ABLE account or used in conjunction with one. An SNT is a type of trust where funds are held for a person with a disability, who is the beneficiary of the trust. A trustee manages and distributes the funds.

Like an ABLE account, an SNT can shelter assets from resource limits, allowing a person with a disability to receive public benefits. Unlike an ABLE account, there are no limits to contributions or how much the trust can hold. However, SNTs do involve significant legal fees to establish, plus administrative fees, so they can be much more expensive to manage than ABLE accounts.

If you or a loved one, receives public benefits due to a disability, contact the lawyers at Vasiliadis Pappas Associates LLC to discover if an ABLE account should be set up.