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What is an Achieving A Better Life Experience (ABLE) account? How can saver’s credit eligibility now help those with disabilities who contribute to their ABLE accounts?

These savings accounts allow people with disabilities and their loved ones to save for disability-related services, such as technology that fosters independence or dental bills not covered by government benefits. Since 2015, California has allowed qualified individuals to use these savings accounts without worrying about affecting benefit eligibility. Tax reform legislation passed last year affected these accounts and the IRS recently released new guidance.

Tax reform increases contribution amount and allows 529 rollovers

The Tax Cuts and Jobs Act passed in late December 2017 increased the amount of money eligible individuals can place into ABLE accounts each year. Loved ones can contribute up the gift exclusion amount of $15,000 each year.

For beneficiaries who work, they can now contribute a portion of what they earn up to a maximum contribution each year of $12,140. There is a caveat, if an employer is contributing to a company retirement plan, a designated beneficiary cannot make contributions to an ABLE account.

For families who had set up a 529 plan (qualified tuition program) prior to ABLE accounts, it is now possible to rollover money from a 529 to an ABLE account.

Eligibility for the Saver’s Credit is also new. It allows a disabled individual to claim up to $2,000 of ABLE account contributions to reduce a tax bill or increase a tax refund. 

With more certainty around the ABLE account tax rules, it is a good time to look at whether the right strategy is in place to provide for the long-term needs of a disabled child, grandchild or other loved one.