IRS Tax Reform Tax Tip 2018-136, August 30, 2018
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.
Here are changes that will affect people who have an ABLE account:
Annual Contribution limit increase
- The limit is $15,000 in 2018.
- 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 2018, this amount is $12,140 in the continental U.S., $13,960 in Hawaii and $15,180 in Alaska
- ABLE account designated beneficiaries may now be eligible to claim the Saver's Credit for a percentage of their contributions.
- The credit is claimed on Form 8880, Credit for Qualified Retirement Savings Contributions (PDF). 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.
- Here is an 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.
States can offer ABLE accounts to help people who become disabled before age 26 and their families save and 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.
- ABLE Accounts - Tax Benefit for People with Disabilities
- Tax reform allows people with disabilities to put more money into ABLE accounts, expands eligibility for Saver’s Credit
- Publication 907, Tax Highlights for Persons with Disabilities (PDF)
- Form 1099-QA, Distributions from ABLE Accounts (PDF)
- Form 5498-QA, ABLE Account Contribution Information (PDF)
- Instructions for Forms 1099-QA and 5498-QA (PDF)