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The Berman Buzz

Tax Tip Tuesday: What Individuals Paying for Disability-Related Expenses Should Consider

For the first time in public policy, the Achieving a Better Life Experience (ABLE) Act recognizes the soaring costs of living with a disability. Individuals with disabilities and their families can use ABLE accounts to help fund qualified disability-related expenses. These include costs related to raising a child with significant disabilities or a working-age adult with disabilities.

Here are some fundamental factors individuals and families should know about these accounts.

Annual Contribution Limit

The beneficiary is the account owner, and income earned by the account will not be taxed if used to pay qualified disability expenses. The total annual contributions by all participating individuals, including family, friends, Special Needs Trust, or Pooled Trust, is $16,000. It must be funded using post-taxed dollars and will not be tax deductible for federal tax purposes. However, some states may permit state income tax deductions for contributions made to an ABLE account.

An employed ABLE account owner not partaking in an employer-sponsored retirement account can make an additional contribution up to the lesser of: (1) the ABLE account owner’s compensation for the tax year, (2) the poverty line amount of $12,880 in the continental U.S., $14,820 in Hawaii, and $16,090 in Alaska.

Saver's Credit

Under the 2017 Tax Cuts and Jobs Act, some designated beneficiaries of ABLE accounts became eligible for the Retirement Savings Contributions Credit, known as the Saver’s Credit. Designed to help low- and moderate-income Americans, the Saver’s Credit can apply up to $2,000 in ABLE contributions for eligible individuals. The non-refundable credit can be claimed on IRS Form 8880 by individuals who meet the following three requirements:

  • Are at least 18 years old at the close of the taxable year

  • Are not a dependent or full-time student

  • Satisfy the adjusted gross income requirements of:

    • $64,000 or less as a married joint filer

    • $48,000 or less as a head of the household filer

    • $32,000 or less than any other filing status

The Saver’s Credit is a permanent addition to the U.S. tax code. Therefore, those unable to take advantage of the ABLE credit may want to consult an experienced tax professional for advice on maximizing federal and state tax benefits.

Rollovers and Transfers from Section 529 Plans

Tax changes allow savings in a 529 account to roll into an ABLE account. You can roll over the annual contribution limit ($15,000) until January 1, 2026. Funds from one family member's 529 plan can roll over to another family member's ABLE account.

The ABLE account must be for the same beneficiary as the 529 accounts or a member of the same family as the 529 account holder. Rollovers from a section 529 plan count toward the annual contribution limit. For example, the $16,000 annual contribution limit for 2022 would be met by parents contributing $10,000 to their child's ABLE account and rolling over $6,000 from a 529 plan to the same ABLE account.

Qualified Disability Expenses

States can offer ABLE accounts to help people who become disabled before age 26 or their families pay for disability-related expenses. These expenses include assistive technology, education, employment training and support, healthcare and wellness, housing, personal support services, and transportation. If you meet this age requirement and receive benefits under SSI or SSDI, you are automatically eligible to establish an ABLE account. Additionally, ABLE accounts are tax-advantaged savings accounts that do not affect eligibility for government assistance programs, such as SSI, Medicaid, FAFSA, HUD, or SNAP.

If you have questions about your unique situation or need strategic financial advice, we are here to help. Contact us to let us know how we can best support you.


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