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Everything You Need to Know About ABLE Accounts and the Associated Tax-Advantages

In 2014, the Achieving a Better Life Experience (ABLE) Act was passed which allowed people to save for the needs of family members with disabilities — without having them lose eligibility for government benefits to which they’re entitled. The Act allows for the creation of a tax-advantaged savings account, called an ABLE account.

ABLE account eligibility

Eligible individuals (beneficiaries) must be blind or disabled — and must have become so before turning age 26. If the individual meets the age requirement and is also receiving benefits from Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) programs, they are automatically eligible. If the individual meets the age requirement but is not receiving benefits from SSI or SSDI programs, they can still be eligible if they meet the Social Security definition and criteria regarding functional limitation test and they receive a letter of disability certification from a licensed physician (MD or DO). Please note: the individual does not need to be under the age of 26 when creating the ABLE account, just have an age of onset under 26.

ABLE account contributions and distributions

ABLE accounts can be created by:

  1. Eligible individuals to support themselves.
  2. By family members to support their dependents, or
  3. By guardians for the benefit of the individuals for whom they’re responsible.

Anyone can contribute to an ABLE account. While contributions must be made with post-taxed dollars, the funds in the account are invested and grow free of tax. The current yearly limit on contributions is the annual gift-tax exclusion amount of $15,000.

Distributions from an ABLE account are tax-free if used to pay for expenses that maintain or improve the beneficiary’s health, independence, or quality of life. These expenses, known as “qualified disability expenses,” include education, housing, transportation, employment support, health and wellness costs, assistive technology, personal support services, and other IRS-approved expenses.

If distributions are used for non-qualified expenses, the portion of the distribution that represents earnings on the account is subject to income tax — plus a 10% penalty.

ABLE account details

Some other miscellaneous items to note about ABLE accounts include:

  • An eligible individual can have only one ABLE account.
  • There’s also a limit on the total account balance. This limit, which varies from state to state, is equal to the limit imposed by that state on qualified tuition (Section 529) plans.
  • ABLE accounts have no impact on an individual’s Medicaid eligibility. However, ABLE account balances of more than $100,000 are counted toward the SSI program’s $2,000 individual resource limit. Therefore, an individual’s SSI benefits are suspended, but not terminated, when his or her ABLE account balance exceeds $102,000 (assuming the individual has no other assets). In addition, distributions from an ABLE account to pay housing expenses count toward the SSI income limit.
  • For contributions made before 2026, the designated beneficiary can claim the saver’s credit for contributions made to his or her ABLE account.
  • In the state of Wisconsin, a state deduction is allowed for the current year’s contributions.

ABLE account conclusion

There are many options out there for ABLE accounts. They are established under state programs. An account may be opened under any state’s program (if the state allows out-of-state participants). The funds in an account can be invested in a variety of options and the account’s investment directions can be changed up to twice a year. Contact Wegner CPAs if you’d like more details about setting up or maintaining an ABLE account.

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