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
Saver¡¯s Credit
- 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.
More information
- 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