The tax reform laws passed at the end of 2017 added some benefits for people with disabilities, raising the amount of money they can put into their Achieving a Better Life Experience (ABLE) accounts. They may even be able to roll a limited amount of money from 529 plans into ABLE accounts. Finally, many will also qualify for the Saver’s Credit for low- and moderate-income workers.
As explained by the IRS, ABLE accounts enable people with disabilities and their families to defray disability-related expenses. The contributions themselves are not deductible, but distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified expenses. These expenses can include housing, education, transportation, health care, prevention and wellness, employment training and support, assistive technology, and personal support services, for example.
Traditionally, contributions totaling up to the annual gift tax exclusion amount may be made to an ABLE account each year for an eligible person with a disability. But beginning with 2018, a working beneficiary can also contribute part or all of what they make to an eligible person’s ABLE account.
This additional contribution is limited to the poverty line amount for a one-person household. For 2018, this amount is $12,140, with higher amounts in Hawaii and Alaska. However, the designated beneficiary is not eligible to make this additional contribution if their employer contributes to a workplace retirement plan on their behalf.
In general, the Saver’s Credit (formally known as the Retirement Savings Contributions Credit) is a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. However, there are income limitations. For example, a credit of 50 percent applies to single filers with adjusted gross income of not more than $19,000, a credit of 20 percent for AGI of $19,001 to $20,500, and a credit of 10 percent for AGI of $20,501 to $31,500.
ABLE account beneficiaries can qualify for the Saver’s Credit based on contributions they make to their ABLE accounts. Up to $2,000 of these contributions qualify for this special credit designed to help low- and moderate-income workers.
These are just the basics; there are additional details you should know if you or a family member thinks you are eligible for an ABLE account. This is especially true if the disabled individual is working. As there are new provisions for 2018 and the Saver’s Credit limits typically are adjusted every year, it’s a good idea to take a fresh look at your tax situation. If you have any questions please contact Vrakas at 262.797.0400 and we will connect you with one of our professionals.