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.
- 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.
- ABLE Accounts – Tax Benefit for People with Disabilities
- Publication 907, Tax Highlights for Persons with Disabilities PDF
- Form 1099-QA, Distributions from ABLE Accounts PDF
- Form 5498-QA, ABLE Account Contribution Information PDF
- Instructions for Forms 1099-QA and 5498-QA PDF