Achieve a Better Life Experience, also known as ABLE accounts, are tax-efficient savings accounts for people with disabilities and their families. These accounts help people with disabilities pay for eligible disability-related expenses without affecting their eligibility for government assistance programs.
Here are some key things people should know about these accounts.
Annual contribution limit
- The 2021 limit is $ 15,000.
- Some employees benefiting from the ABLE account can pay an additional contribution up to the lesser of these amounts:
- The remuneration of the designated beneficiary for the tax year.
- The poverty line for a one-person household. For 2021, this amount is $ 12,880 in the continental United States, $ 16,090 in Alaska and $ 14,820 in Hawaii.
Saver credit
- Designated beneficiaries of the ABLE Account may be eligible for savings credit for a percentage of their contributions.
- The beneficiary claims the credit on Form 8880, Credit for Qualifying Retirement Savings Contributions. The savings loan is a non-refundable loan accessible to individuals who meet these three conditions:
- Be at least 18 years old at the end of the tax year
- Are not a dependent or a full-time student
- Meet income requirements
Rollovers and Transfers of Section 529 Plans
- Families can transfer funds from a 529 plan to the ABLE account of another family member.
- The ABLE account must be intended for the same beneficiary as the 529 account or for a member of the same family as the 529 account holder. Rollovers in a section 529 plan are taken into account in the annual contribution limit. For example, the annual contribution limit of $ 15,000 would be reached if parents contributed $ 10,000 to their child’s ABLE account and transferred $ 5,000 from a 529 plan to the same ABLE account.
Eligible disability expenses
- States may offer ABLE accounts to help people with disabilities under the age of 26 or their families with disability-related expenses. These expenditures include housing, education, transportation, health, prevention and welfare, training and employment support, assistive technology and personal support services.
- Although contributions are not deductible for federal tax purposes, distributions, including income, are tax-free to the beneficiary, if used to pay qualifying disability expenses.
More information:
ABLE Accounts – Tax Advantage for People with Disabilities
Publication 907, Tax Highlights for People with Disabilities
Form 1099-QA, Distributions from ABLE Accounts
Form 5498-QA, ABLE Account Contribution Information
Instructions for Forms 1099-QA and 5498-QA
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