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ABLE Accounts – Tax Advantages for Those Living with Disabilities

April 15, 2020

ABLE Accounts – Tax Advantages for Those Living with Disabilities

The Achieving a Better Life (ABLE) Act of 2014 allows States to establish programs, for eligible individuals with disabilities, and enable them to participate in a tax advantaged savings program. This benefit does not impact the “government means test benefits,” as long as the account within the account is under the allowed maximum.

The designated beneficiary can use this money to pay for qualified disability expenses, which includes basic living expenses. Not only does this allow the beneficiary to save beyond the Social Security Administration and MediCaid/MediCal resource limitations, it also allows SSI recipients to pay for shelter, without incurring an in-kind support and maintenance deduction.

When it comes to taxes, all qualified distributions are not taxable. Furthermore, the account’s designated beneficiary may be able to claim the saver’s credit (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit) on his or her tax return.

Notes:

The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities (designated beneficiaries). Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses. Distributions are tax-free if used for qualified disability expenses.

The Tax Cuts and Jobs Act of 2017

  • Increases the amount of contributions allowed to an ABLE account and adds special rules for the increased contribution limit.
  • Allows an ABLE account’s designated beneficiary to claim the saver's credit for contributions to the account.
  • Allows rollovers in limited amounts from a 529 qualified tuition program account of the designated beneficiary to be transferred to ABLE account of the designated beneficiary or his or her family member.

Author: Lee Ann Hitchman, Founding Partner and Professional Fiduciary