ABLE accounts are a valuable benefit for taxpayers with disabilities

IRS Tax Tip 2020-160, November 24, 2020

Living with a disability can come with additional expenses. Achieving a Better Life Experience accounts are authorized tax-advantaged 529A accounts that help disabled people pay qualified disability-related expenses.

Here are some key things people should know about these accounts.

Annual contribution limit

  • The limit remains $15,000 in 2020.
  • Certain employed ABLE account beneficiaries may make an additional contribution up to the lesser of these amounts:
    • The designated beneficiary's compensation for the tax year 
    • The poverty line for a one-person household. For 2020, this amount is $12,490 in the continental U.S., $15,600 in Alaska and $14,380 in Hawaii. 

Saver's credit

  • ABLE account designated beneficiaries may now be eligible to claim the saver's credit for a percentage of their contributions. 
  • The beneficiary claims the credit 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:
    • Are at least 18 years old at the close of the taxable year
    • Are not a dependent or a full-time student
    • 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. For 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.

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 housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services.
  • 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. 

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