If you have a loved one with disabilities, you may be familiar with “ABLE” accounts. Authorized by Congress in 2014 under the Achieving a Better Life Experience Act, ABLE accounts are tax-advantaged savings accounts. They’re similar to 529 education savings plans, whose funds can be used to pay for certain qualifying expenses of disabled individuals. As a result of the Tax Cuts and Jobs Act (TCJA), there are several new changes that affect ABLE accounts.
What You Should Know
A 529 account can now roll over to an ABLE account
However, the ABLE account must be for the same beneficiary as the 529 account or for a member of the same family. Previously, families funding a 529 account for a child whose disability manifested later in life would suffer a tax penalty. This was because funds were withdrawn from the 529 account to cover medical expenses, not allowable education expenses. Now those same funds, through the use of the rollover, can be made available for the beneficiary’s disability-related expenses. There are limits on how much can be rolled over, so discuss any 529 plan changes with your tax professional.
A beneficiary of an ABLE account can now contribute their personal earned income to their own account.
The maximum amount a beneficiary can contribute is equal to the annual federal poverty level for a one-person home. In 2019 this is $12,490.00 for the continental US and the District of Columbia. These contributions, however, are separate and apart from contributions to the ABLE account by other individuals. So not including contributions by family members, friends, estates, trusts, etc. Further, a working beneficiary is ineligible to personally contribute to the ABLE account if their employer contributes to a workplace retirement plan on his or her behalf.
Beneficiaries who contribute to their own ABLE account may be eligible for the Saver’s Credit.
This is as opposed to others who contribute to the account. Up to $2,000 of the contributions made by ABLE account beneficiaries may be eligible for this credit. This may help lower any income tax owed by the beneficiary. It also may increase any refund the beneficiary receives. There are, however, additional requirements that need to be met. Always check with a tax professional to determine what credits are available to beneficiaries who contribute to their own accounts.
Know Your Options
It is important to know that ABLE accounts, as well as special needs trusts, have an underlying purpose. They are to supplement, not replace, the benefits and services provided by government programs like Medicaid and Supplemental Security Income (SSI). If you or a loved one have a disability, contact us for help through the process of creating a plan works for your family.