In late December 2014, President Obama signed the ABLE Act into law. Under this law, beginning in 2015 states will be allowed to set up ABLE account programs very similar to the way they operate tax-favored 529 college savings plans. Relatives or friends can make annual contributions to an ABLE account up to the maximum federal tax-free gift limit. That’s $14,000 for 2015, with the limit adjusted annually for inflation.

Similar to the gift tax law, these contributions are not tax-free or tax-deductible for the donor. They are, however, exempt from the gift tax. States can decide if they will exempt contributions from state taxes.

Withdrawals for qualified expenses will be tax-free on the federal level. The ABLE Act covers education, transportation, assistive technology, employment, health care and housing costs.

The ABLE Act amends Section 529 of the Internal Revenue Service Code of 1986 to create tax-free savings accounts for individuals with disabilities. Find more information here.