Tax Favored ABLE Accounts for Those Faced with Disabilities

Your Guide to State, Local, Federal, Estate + International Taxation

Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts (Achieving a Better Life Experience) are designed to enable people with disabilities and their families to save for and pay for disability related expenses. Enacted on December 19th, 2014, as part of the Tax Increase Prevention Act of 2014, the ABLE Act permits a state to establish and maintain this new type of tax-advantaged savings program under section 529A of the Internal Revenue Code. Contributions may be made to a 529A that is established for purposes of meeting the qualified disability expenses of the designated beneficiary of the account who is a resident of that state or of a contracting state.

Contributions totaling up to the annual gift tax exclusion amount (currently $14,000) may be made to an ABLE account each year (subject to a cumulative limit), and distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified disability expenses. These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other disability related expenses.

Those considering setting up such an account should know that in general, an ABLE account is not to be counted in determining the designated beneficiary’s eligibility for many federal means-tested programs, or in determining the amount of any benefit or assistance provided under those programs, although special rules and limits apply for Supplemental Security Income (SSI) purposes.

By Dale F. Jensen, CPA