Tax Tip – ABLE Accounts are a Valuable Benefit for Taxpayers with Disabilities and 529 Plans

Living with a disability can come with additional expenses. Achieving a Better Life Experience accounts are authorized tax-advantaged 529A accounts that help disabled people pay qualified disability-related expenses.

ABLE Accounts are a Valuable Benefit for Taxpayers with Disabilities and 529 Plans
ABLE Accounts are a Valuable Benefit for Taxpayers with Disabilities and 529 Plans

Here are some key things people should know about these accounts.

Annual contribution limit:

• The limit remains $15,000 in 2020.

• 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 2020, this amount is $12,490 in the continental U.S., $15,600 in Alaska and $14,380 in Hawaii.

Saver’s credit:

• ABLE account designated beneficiaries may now be eligible to claim the saver’s credit for a percentage of their contributions.

• The beneficiary claims the credit on Form 8880, Credit for Qualified Retirement Savings Contributions. 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. For 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.

Qualified disability expenses:

• States can offer ABLE accounts to help people who become disabled before age 26 or their families 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.

For more information about tax forms and filing your 2020 income tax return, please call Don Fitch, CPA at (760)567-3110.

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Palm Desert, CA 92260

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P.S. My firm is based upon ongoing referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.

Tax Tips provided by Don Fitch, CPA
Tax Tips provided by Don Fitch, CPA

This blog post is intended to serve solely as an aid in continuing tax education for Don Fitch Accountancy blog and email members. Due to the constantly changing nature of the subject of the materials, this product is not appropriate to serve as the sole resource for any federal tax, accounting opinion, tax return position, and must be supplemented for such purposes with other current authoritative materials. The information in this blog post has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. In addition, Don Fitch Accountancy is not engaged in rendering legal or other professional services and will not be held liable for any actions or suits based on this blog post, email, or comments made during the above presentation. If legal advice or other expert assistance is required, seek the services of a competent professional.

(Updated 02/21/2021 10:46)

Published by Don Fitch, CPA

Offers in Compromise, Wage Levy Releases, Installment Agreements, IRS Audits, and much more IRS assistance. Also, allow us to Help you complete your Tax Returns from 1913 to present (100+ Years) and for any of the 50 States.

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