Here’s How Disabled Americans Can Save Up to $14K Per Year Tax-Free

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able account
Justin Bainbridge works two part-time jobs: folding towels at a gym and at a movie theater. A new type of savings program is giving Bainbridge and others with disabilities, a chance to save more cash. AP Photo/Nati Harnik

People on Medicaid or Supplemental Security Income for a disability walk a fine line when it comes to putting money in a savings account.

Add too little, and there’s not enough to create a reliable emergency fund. Add too much, and risk losing eligibility for benefits.

Achieving a Better Life Experience (ABLE) accounts are gaining ground across the U.S. They’re a great way for people with disabilities to put money in a savings account without the risk of losing eligibility for other important benefits programs.

According the U.S. Social Security Administration website, anyone who is “blind or disabled by a condition that began before the individual’s 26th birthday” can open an ABLE account.

There are a few other requirements account holders must meet, so be sure to check out the website to learn all the details.

If a disabled person is unable to open or maintain an ABLE account on their own, a parent, legal guardian or agent with power of attorney can do so in their name.

The great thing about an ABLE account is that account holders can stash up to $14,000 per year in it, and it doesn’t count as income. The account holder can withdraw money at any time to cover disability expenses and associated bills.

What Qualifies as an ABLE Account Disability Expense?

Account holders can earmark ABLE account money to cover costs related to their blindness or disability. A wide variety of expenses are covered, including:

  • Housing and transportation
  • Education
  • Employment training
  • Health services
  • Assistive technology
  • Legal fees
  • Basic living expenses
  • Funeral and burial expenses
  • Financial management

Account holders can also use pretax dollars to contribute to the account, and account earnings are not taxed. Withdrawals are also not taxed as long as they’re used for disability-related expenses.

How to Set Up an ABLE Account

Currently, only a handful of states offer ABLE account programs, but many more are expected to follow suit later this year. However, that doesn’t mean ABLE accounts are out of reach if there’s no program in your state.

Alaska, Michigan, Nebraska, Ohio, Oregon, Rhode Island, Tennessee and Virginia accept people from anywhere in the country into their programs. Each has its own fees, benefits and options, so check out Time’s state-by-state list of ABLE programs to find one that matches your needs.

If the idea of using pretax money to pay for medical expenses sounds familiar, that’s because the concept is a lot like 529 college savings plans and HSA and FSA programs.

It’s always worth taking a look at any tax-advantaged program that could allow you to hoard a few extra pennies to see if you qualify.

Your Turn: Do you have an ABLE account? Was it easy to set up?

Lisa McGreevy is a staff writer at The Penny Hoarder. She tends to hang out on Twitter a whole lot, so go look her up @lisah and say hi.