Tax Reform Affects ABLE Accounts, Saver’s Credit, 529 Rollovers

The Tax Cuts and Jobs Act made several changes to ABLE accounts. ABLE accounts were created by The Achieving a Better Life Experience Act of 2014. They are authorized tax-advantaged section 529A accounts to help disabled people pay for qualified disability-related expenses. States can offer ABLE accounts to help people who become disabled before age 26 and their families save and pay for disability-related expenses. Though contributions aren’t 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.

Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses. Distributions are tax-free if used for qualified disability expenses. These expenses include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services.

Here are changes that will affect people who have an ABLE account:

Annual Contribution limit increase

• The limit is $15,000 in 2018.
• Certain employed ABLE account beneficiaries may make an additional contribution up to the lesser of these amounts: o The designated beneficiary’s compensation for the tax year o The poverty line for a one-person household. For 2018, this amount is $12,140 in the continental U.S., $13,960 in Hawaii and $15,180 in Alaska

Saver’s Credit

• ABLE account designated beneficiaries may now be eligible to claim the Saver’s Credit for a percentage of their contributions.
• The credit is claimed 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: o Are at least 18 years old at the close of the taxable year o Are not a dependent or a full-time student o Meet the income requirements

Rollovers and transfers from section 529 plans

• Families may now roll over funds from a 529 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.  o Here is an 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.

More about the increased contribution limit

In addition to the annual limit of $15,000 (the gift tax exclusion amount for 2018), a designated beneficiary who works may also contribute his or her compensation up to the poverty line amount for a one-person household. A designated beneficiary can’t contribute this additional amount if his or her employer made a contribution for him or her to a:

401(a) defined contribution plan or 403(a) annuity contract

403(b) annuity contract

457(b) eligible deferred compensation plan

More about rollovers from qualified tuition programs

Funds from a designated beneficiary’s qualified tuition program (also known as a 529 plan) may be rolled into an ABLE account of the designated beneficiary or of his/her family member. The permissible rollover is limited in amount.

If you have any questions or would like to know more, please contact Bruce R. Seglund at bseglund@michlaw.biz.

Seglund Gabe Pawlak & Groth, PLC
28345 Beck Road
Suite 301
Wixom, MI 48393
Phone: (248) 869-0030
Fax: (248) 869-0039
www.michlaw.biz

***The information provided in this article is for informational purposes only and is not legal advice.