New Tax Law Makes Changes to ABLE Accounts

Families taking advantage of ABLE savings accounts will have a little more flexibility in planning for special needs as a result of the new Tax Cuts and Jobs Act signed into law by President Trump on December 22, 2017.

As we previously discussed, ABLE accounts, created by Congress via the passage of the Achieving a Better Life Experience (ABLE) Act in 2014, allow people with disabilities and their families to save for disability related expenses, while maintaining eligibility for Medicaid and other means-tested public benefits programs.

Currently, people can contribute up to $15,000.00 annually into qualified ABLE accounts.  A provision in the new tax law allows families who have saved money in 529 savings accounts to roll over up to $15,000 each year from a 529 account to an ABLE account.   The 529 account must be for the same beneficiary as the ABLE account or for a member of the same family as the ABLE account holder.  Many disability advocates had previously pushed for this change via a bill known as the ABLE Financial Planning Act.   Also as part of the new tax bill, while 529 accounts could previously only cover costs for college, they can now pay for a child’s K-12 education in a public, private or religious school.

The tax bill also includes changes to benefit ABLE account beneficiaries earning income from employment. These individuals will be able to make ABLE contributions above the $15,000 annual cap from their own income up to the Federal Poverty Level, which is $12,760 for a single individual in the lower 48 states (in 2020), provided they do not participate in their employer’s retirement plan. This change was previously proposed in legislation known as the ABLE to Work Act.

The Consortium for Citizens with Disabilities previously voiced opposition to this revision, on the basis that if not properly implemented, it could increase the beneficiaries’ vulnerability to losing public benefits and pose major administrative burdens.

To read the text of the final bill, the Tax Cuts and Jobs Act, click here.

Click here to read more about ABLE accounts from with the ABLE National Resource Center.