What Happens To An ABLE Account When Disability Status Changes?

ABLE accounts (Achieving a Better Life Experience accounts) are savings accounts created to help individuals with disabilities save money without risking eligibility for benefits like Medicaid or SSI. Contributions grow tax-free and can be used for qualified disability expenses, such as housing, education, and healthcare. As of 2025, up to $19,000 can be contributed each year.

But what happens if the beneficiary’s medical condition improves, or they’re no longer considered disabled under IRS rules?

When disability status changes, it’s important to know how it affects the ABLE account. The good news is that the account can remain active until the end of the calendar year when the change occurred. During that time, the beneficiary can continue making contributions and use the funds for qualified expenses.

However, starting the following year, the account loses its tax-advantaged status. New contributions are no longer allowed, and any withdrawals may be taxed — especially if they include investment growth or interest. In some cases, a 10% tax penalty may also apply.

To avoid financial pitfalls, it’s wise to use the remaining funds before the end of the year on qualifying expenses like job training, housing, or assistive devices. Once the funds are spent, the account can be closed.

Also, if the beneficiary received Medicaid benefits while the account was active, state agencies may have the right to recover funds after death—even if the person is no longer considered disabled.

Losing eligibility doesn't mean losing control. With smart planning and the help of a special needs planning attorney, families can make informed decisions about how to manage or transition the ABLE account.

Learn more: ABLE Accounts: When The Beneficiary Is No Longer Disabled

If you would like to speak with a special needs planning attorney, give our office a call at 605-275-5665.