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Tax reform allows more money into ABLE accounts

On Behalf of | Jun 22, 2018 | Uncategorized |

The Internal Revenue Service (IRS) announced recently people with disabilities can put more money into their tax-favored Achieving a Better Life Experience (ABLE) accounts and be qualified for the Saver’s Credit for low- and moderate-income workers.

The new Tax Cuts and Jobs Act enables individuals with disabilities to roll money from their 529 plans – known as qualified tuition programs – into their ABLE accounts. ABLE accounts are tax-advantaged savings accounts for individuals and their families. The beneficiary of the account is the account owner, and income earned by the accounts will not be taxed.

Uncertainty for the future of ABLE

The provision is likely to help families who established a college fund before learning that their child has a disability, according to some experts. States will also offer specially designed ABLE accounts for individuals who become disabled before age 26, which helps families cover disability-related expenses.

Currently, the annual gift tax exclusion amount is $15,000, but in 2018, the beneficiary will be able to contribute part or all of their income into the ABLE account. However, the designated beneficiary is not eligible to make additional contributions if their employer contributes to a retirement plan on their behalf.

While adding savings could benefit some individuals, disability advocates are concerned about risking governmental benefits. An example is ABLE account holders are responsible for monitoring their contributions above $15,000 and ensure they comply with the law. Mistakes could disqualify individuals from certain governmental programs.

Advocates also say tax cuts mean less revenue for the government and more debates on everything from spending on Medicaid to special education. It takes time to see the long-term effects of the new acts, so anyone with questions can find more information on the IRS website.

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