05 Oct TAX LAW BENEFITS ABLE ACCOUNTS
The Tax Cuts and Jobs Act has made a couple of changes to those who have ABLE accounts. A few years ago a federal law, entitled the Achieving a Better Life Experience (ABLE) Act, was passed which allowed for tax-free growth savings accounts for the benefit of persons who developed a disability prior to age 26 with such accounts not counting as a resource for public benefits such as Medicaid, food stamps and other means-tested benefits. Such savings could be used for disability related expenses. A few of the other benefits include: (1) the disabled person can control and manage their own accounts (which is contrary to the requirements of a first party special needs trust); (2) it is easy to establish; and (3) it could be used more liberally for expenses compared to first party special needs trusts. However, no more than $15,000 can be contributed to an ABLE account within a calendar year and it could never exceed $100,000 without jeopardizing public benefits.
The Tax Cuts and Jobs Act has now given a couple of more advantages. The new law encourages certain low and middle-income workers who have an ABLE account or contribute to an ABLE account for someone else (as long as the beneficiary of the ABLE account is not a beneficiary of the one who contributes to such account) to save for retirement by giving them a tax credit (called a “saver’s credit”) ranging from 10 to 50 percent of their annual contributions to the ABLE account (similar to what is permitted for IRAs and other retirement accounts). If the contributor’s income is less than $28,601 (in year 2018), then such contributor would receive a 50% credit for their contribution. No credits is permitted for one who makes more than $47,250.
The Tax Cuts and Jobs Act also allows families who have saved in a 529 (college savings account) to roll over up to $15,000 a year to an ABLE account assuming the account is for the same beneficiary of the 529.