ABLE Accounts

You may have heard mention of ABLE accounts.  So, what is an ABLE account?  ABLE stands for Achieving a Better Life Experience for persons with disabilities.

ABLE accounts are designed to help people with disabilities and their families save and pay for disability-related expenses. Though contributions are not deductible, distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified disability expenses. These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology, personal support services and other disability-related expenses.

Normally, contributions totaling up to the annual gift-tax exclusion amount, currently $15,000, may be made to an ABLE account each year for the benefit of an eligible person with a disability, known as a designated beneficiary. Starting in 2018, if the beneficiary works, the beneficiary can also contribute part, or all, of their income to their ABLE account.

This additional contribution is limited to the poverty-line amount for a one-person household. For 2018, this amount is $12,140 in the continental U.S. The designated beneficiary is not, however, eligible to make this additional contribution if their employer contributes to a workplace retirement plan on their behalf.

ABLE account beneficiaries can qualify for the Saver’s Credit based on contributions they make to their ABLE accounts. Up to $2,000 of these contributions may qualify for this special credit designed to help low- and moderate-income workers. Claimed on Form 8880, Credit for Qualified Retirement Savings Contributions, this credit can reduce the amount of tax a person owes or increase their refund.

Finally, some funds may now be rolled into an ABLE account from the designated beneficiary’s own 529 plan or from the 529 plan of certain family members.

For more information about ABLE accounts visit IRS.gov.     

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