ABLE Act Update Lets Workers with Disabilities Save Employer 401(k) Money Without Losing Federal Benefits

The new ABLE Employment Flexibility Act is a big deal for working people with disabilities who rely on means-tested federal assistance, like Medicaid or Supplemental Security Income (SSI). The core of this bill is simple: it changes tax and retirement rules to allow eligible employees to direct their employer’s defined contribution retirement plan money (think 401(k) matching funds) straight into their qualified ABLE account.

The ABLE Account Upgrade: No More Choosing Between Saving and Surviving

For years, one of the biggest financial hurdles for working individuals with disabilities has been the asset limit for federal benefits. Save too much money—often just a couple thousand dollars—and you risk losing essential benefits like healthcare. ABLE accounts (Achieving a Better Life Experience) were created to allow people to save money without losing these benefits, but the rules around workplace retirement plans were still messy.

This Act cleans that up. If your employer offers a 401(k) or similar plan, the bill allows them to offer an option where you, as an eligible ABLE individual, can choose to have those employer contributions sent directly to your ABLE account instead. This is a game-changer because the bill explicitly states that any money contributed this way will be ignored when determining eligibility for means-tested federal programs. This means you can finally take full advantage of workplace savings without the constant worry of losing your health coverage.

How the IRS and Your Boss Treat the Money

For the bean counters out there, the bill clarifies a couple of crucial things. First, even though the money goes to the ABLE account, it’s still treated as if it were in the retirement plan for purposes of nondiscrimination rules. This is important because it prevents employers from running into trouble with the IRS by offering this special option. It keeps the playing field level.

Second, the bill provides much-needed clarity for businesses. It confirms that when an employer sends money to an employee’s ABLE account—whether it’s a match or a direct contribution—it counts as a reasonable business expense, just like salary, and is therefore tax-deductible under Section 162. This deduction is capped at the annual ABLE contribution limit. The Treasury Secretary has been tasked with updating regulations and creating model plan amendments within one year to make it easy for employers to adopt this change.

Real-World Impact: Financial Independence

Imagine you’re a software developer with a disability who earns a good salary but needs Medicaid to cover specialized care. Before this bill, if your employer matched your 401(k) contributions, that money would eventually push you over the asset limit for SSI or Medicaid, forcing you to choose between retirement savings and essential healthcare.

Now, you can elect to have that employer match go into your ABLE account. The money grows tax-free, and it doesn't count against your asset limit. This provision directly tackles the “benefits cliff” that penalizes success and savings, paving a much clearer path toward financial independence for working Americans with disabilities. Crucially, some of the tax deduction clarifications for employers are applied retroactively, which helps clear up confusion that might have existed even before this Act.