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ABLE accounts: valuable financial solution for people with disabilities

By Phil Towers|2021-10-09T13:59:44-07:00October 11th, 2021|Income Tax|

Have you ever heard of an ABLE account? If not, keeping reading, especially if you have a disability.

The IRS reports among it many tax tips for taxpayers that Achieving a Better Life Experience or ABLE accounts are tax-advantaged savings accounts for individuals with disabilities and their families.

How can they help?

ABLE Accounts Can Help

ABLE accounts help disabled people pay qualified disability-related expenses without affecting their eligibility for government assistance programs, according to IRS tips.

Here are some key things people should know about these accounts.

Annual Contribution Limit

The 2021 limit is $15,000.
Certain employed ABLE account beneficiaries may make an additional contribution up to the lesser of these amounts:
- The designated beneficiary’s compensation for the tax year.
- The poverty line for a one-person household. For 2021, this amount is $12,880 in the continental U.S., $16,090 in Alaska, and $14,820 in Hawaii.

Saver’s Credit

An ABLE account-designated beneficiary may be eligible to claim the saver’s credit for a percentage of their contributions.
The beneficiary claims the credit on Form 8880, Credit for Qualified Retirement Savings Contributions PDF. The saver’s credit is a non-refundable credit available to individuals who meet these three requirements:
- Are at least 18 years old at the close of the taxable year
- Are not a dependent or a full-time student
- Meet the income requirements

Rollovers and Transfers from Section 529 Plans

Families may rollover funds from a 529 plan to another family member’s ABLE account.
The ABLE account must be for the same beneficiary as the 529 accounts or a member of the same family as the 529 account holder, according to the IRS tips sheet. Rollovers from a section 529 plan count toward the annual contribution limit. For example, the $15,000 annual contribution limit would be met by parents contributing $10,000 to their child’s ABLE account and rolling over $5,000 from a 529 plan to the same ABLE account.

Qualified Disability Expenses

States can offer ABLE accounts to help people who become disabled before age 26 or their families pay for disability-related expenses. These expenses include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology, and personal support services, according to IRS tips.
Though contributions aren’t deductible for federal tax purposes, distributions, including earnings, are tax-free to the beneficiary, if they are used to pay qualified disability expenses.

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