People with disabilities face huge financial challenges and for years could not save money, or even work part-time, without endangering their benefits.

But in 2014, Congress authorized a new savings option that began rolling out last year: the ABLE account. It lets children or adults with disabilities incurred before age 26 accumulate as much as $14,000 per year tax-free—and without endangering such benefits.

ABLE accounts are now available nationwide. (The name stands for A Better Life Experience.) Modeled after 529 college savings plans, these accounts are offered by individual states and offer a variety of investing options.

“This is a big step forward,” says Chris Rodriguez, director of public policy at the National Disability Institute, a nonprofit group. “Previously many people with disabilities have not been able to work even part-time because they would lose benefits.”

Up until recently, an individual with disabilities who had more than $2,000 in savings might lose out on benefits, such as Supplemental Security Income (SSI) and Medicaid.

More than 20 states have launched ABLE plans, including a Massachusetts program managed by Fidelity, which opened in May. There are now more than 7,000 ABLE accounts, holding almost $26 million in assets, according to recent data from Strategic Insight, a financial research firm.

ABLE accounts are also cheaper and easier to access than special needs trusts, which previously were the only way families could put away money for individuals with disabilities without risking benefits.

The Basics of ABLE Accounts

ABLE accounts do have significant drawbacks, including that you must have incurred the disability before age 26. But for many people with disabilities, ABLE plans offer much-needed financial flexibility. To figure out whether an account is right for your needs, here are answers to five key questions:

Do I Qualify?

To be eligible for an ABLE account, you must have incurred a major disability before turning age 26. That limitation was necessary to ensure the ABLE Act’s passage by Congress, says Rodriguez, because the lost tax revenue for a higher age limit would have been a deal breaker. Bills have been introduced in Congress that would raise the qualifying age to 46, but it’s not clear whether they will gain support this year.

So for those who had an early diagnosis, if you're already receiving SSI or Social Security Disability Insurance (SSDI), you automatically qualify. If you aren’t receiving those benefits but your disability fits Social Security’s criteria, most plans let you “self-certify” by providing a doctor’s note and date of diagnosis.  

“You may not have to provide documentation when you open the account, but you may be asked to do so later, so make sure you have it ready,” says attorney Katherine Barr, president of the Special Needs Alliance, a nonprofit group.

How Do I Sign Up?

You don’t have to live in a state with an ABLE program to open an account. Just as with 529 college savings plans, you can sign up online with any state plan that is available nationwide; only a few are limited to state residents. Parents, guardians, or those with power of attorney can open accounts on behalf of minors or those who need assistance.

You can find information about individual state plans at the ABLE National Resource Center. Unlike 529 plans, however, only one ABLE account can be opened per eligible individual.

How Much Can I Save?

The maximum amount from all contributors is $14,000 per year, which matches the annual amount you can give an individual without incurring a gift tax. That amount will rise with inflation in future years.

The total ABLE account balance can grow to $100,000 without triggering benefit losses, but that amount will not be adjusted for inflation. If that cap is exceeded, the individual’s Social Security payments will be suspended until the account falls below the limit. This will not affect Medicaid medical benefits. For those who are not receiving means-tested benefits, you can save up to the 529 plan limit for that state, which is usually $350,000 or more.  

If the beneficiary received Medicaid, some or all of the savings in an ABLE account can be claimed as repayment by the state after death.

Which Expenses Are Allowed?

“Qualifying expenses can be things that enhance the person’s health, well-being, and independence,” says Mary Morris, head of Virginia’s ABLEnow plan. In addition to basic living expenses, these accounts can be used to pay the cost of transportation, education, career training, and assistive technology.   

How Do I Choose an Account?

First, find out whether your state plan offers tax breaks on contributions to ABLE accounts. Oregon, for one, offers a $2,310 deduction per single filer, and Nebraska offers a $10,000 break. If that’s the case, you’ll probably do best to stay in-state; otherwise feel free to shop around.

Be sure to check the costs. Most plans charge annual fees, usually $45 per year. The investment expenses vary but are generally low. Ohio’s plan charges 0.19 percent to 0.34 percent for residents, and Michigan’s fees range from 0.50 percent to 0.78 percent.