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
Rollovers and transfers from section 529 plans
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
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.
Seglund Gabe Pawlak & Groth, PLC
28345 Beck Road
Wixom, MI 48393
Phone: (248) 869-0030
Fax: (248) 869-0039
***The information provided in this article is for informational purposes only and is not legal advice.