ABLE Accounts: Valuable Benefit for Taxpayers with Disabilities

Living with a disability can come with additional expenses. Achieving a Better Life Experience accounts (ABLE accounts) are authorized tax-advantaged 529A accounts that help disabled people pay qualified disability-related expenses.

What is an ABLE Account?

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

Annual Contribution Limit

  • The limit remains $15,000 in 2021.
  • 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 $12,760 in the continental U.S., $15,950 in Alaska and $14,680 in Hawaii.

Saver’s Credit

  • ABLE account designated beneficiaries may now 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. 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 ABLE Account Plans

  • Families may now roll over funds from a 529 ABLE account plan to another family member’s ABLE account.
  • The ABLE account must be for the same beneficiary as the 529 account or for a member of the same family as the 529 account holder. 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.
  • Though contributions are not deductible for federal tax purposes, distributions, including earnings, are tax-free to the beneficiary, as long as they are used to pay qualified disability expenses.

For more information on ABLE Accounts, please contact us.

Author: Wayne M. Pecht, Esq.
Part of the Johnson Duffie Estate and Trust Planning Team