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TCJA Improves Tax Benefits of ABLE Accounts

Jul 19, 2018

The Achieving a Better Life Experience (ABLE) Act of 2014 allowed states to create ABLE accounts for people who become blind or disabled before age 26. ABLE accounts were designed to allow people with disabilities and their families with a tax-favored way to save and pay for disability-related expenses. In addition, an ABLE account is disregarded for purposes of determining eligibility for benefits under Supplemental Security Income (SSI) and certain other means-tested federal programs.

Contributions to ABLE plans must be made in cash or cash equivalents and are not tax deductible. Annual contributions to such plans were limited to the annual gift tax exclusion amount, currently
$15,000, and could be made by anyone, not just the designated beneficiary. In addition to the annual contribution cap, there is also a cumulative contribution limit, which is the same as the state’s Sec. 529 (qualified tuition programs) cumulative limit.

Distributions from ABLE plans, including accumulated earnings, are completely tax free to the designated beneficiary if they are used to pay qualifying expenses. Qualifying expenses include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services, and other disability-related expenses.

The TCJA expanded the ability to make greater contributions to ABLE plans, starting in 2018:

  • If the beneficiary is employed and does not participate in an employer retirement plan, the beneficiary can contribute up to 100% of their earned income to their ABLE account.
  • This additional contribution is limited to the prior year’s poverty line amount for a one-person household. For 2018, this amount is $12,140 in the continental United States, $13,960 in Hawaii, and $15,180 in Alaska.
  • Note that unlike the base contribution discussed above, this additional contribution cannot be made by just anyone; it can be made only by the designated beneficiary.

 The TCJA also now allows qualifying ABLE beneficiaries to claim the Saver’s Credit based on contributions they make to their ABLE accounts:

  • This is a credit for eligible lower-income taxpayers whereby the taxpayer can claim a tax credit for up to 50% of the amount they contribute to a qualified account. (Previously, just retirement plans were considered qualified, but now the definition is expanded to include an ABLE account.)
  • Taxpayers are eligible for the Saver’s Credit if they are age 18 or older, not a full-time student, and not claimed as a dependent on another person’s return.
  • Up to $2,000 of such contributions qualify for the credit.
  • The credit is refundable.

Finally, the TCJA allows some funds from Sec. 529 plans to be rolled into an ABLE account:

  • Amounts can be rolled into an ABLE account from the beneficiary’s own Sec. 529 plan.
  • Amounts can be rolled into an ABLE account from the Sec. 529 plan of certain family members.
  • Only the annual ABLE account contribution (the current $15,000 limitation mentioned above) can be rolled over per year, and the rollover amount counts toward that $15,000 limit.
  • A 60-day rollover period applies.


Crystal Christenson, CPA, MST
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