One in four adults in the US has, according to the Centers for Disease Control and Prevention. In addition, every third disabled person between the ages of 18 and 44 had an unmet need for medical care due to costs in the past year, and one in four between the ages of 45 and 64 did not have a routine check-up. These are just a few of the many needs that people with disabilities cannot meet.
To help disabled people save and pay for disability-related expenses, the US Congress created the Achieving a Better Life Experience (ABLE) bill, which was incorporated into law on December 19, 2014.
What is the ABLE law?
The ABLE Act amends Section 529A of the Internal Revenue Code to allow states to establish austerity programs for eligible individuals with disabilities. Currently, most states offer ABLE programs.
ABLE accounts can generally save people with disabilities money without compromising their eligibility for government-funded programs like Medicaid and Supplemental Security Income (SSI).
What costs do ABLE funds cover?
The money can be used to pay for qualified disability expenses as defined by the IRS, including:
- education
- Healthcare
- Prevention and wellness
- casing
- transport
- Personal support
- Assistive technology
- Training and employment assistance
- Leisure activities that increase the quality of life
- Funeral and funeral
- Basic life
- Legal fees
Participants can save and / or invest their ABLE account balance. Funds can typically be accessed in a number of ways, including: B. using a prepaid debit card, online withdrawals, or requesting a paper check.
What are the tax benefits of ABLE accounts?
Contributions to an ABLE account are not tax deductible. On the other hand, distributions (including capital gains) are tax-free as long as the money withdrawn from the account is used for qualified disability expenses. In some states, ABLE contributions are deductible for state income tax purposes.
What are the conditions of participation?
You must have a qualified disability that began before you were 26 years old. As long as the disability started before your 26th birthday, you can always open an ABLE account.
Who can contribute?
Anyone (as defined by the IRS) can contribute to an ABLE Account, including:
- Individuals such as account holders, family members, and friends
- estate
- trust
- Association
- partnership
- Companies
- Group
What are the contribution limits?
According to IRS rules, annual contributions to an ABLE account cannot exceed the value of the annual gift tax exemption, which is $ 15,000 for 2020 and 2021.
Disabled workers who are not part of their employer’s pension plan can add an additional amount to their ABLE account. This additional amount cannot exceed the federal poverty line for a household of one.
Many states have an ABLE account term limit. This is the maximum amount that can be put into an ABLE account in a lifetime. According to the ABLE National Resource Center (NRC), government ABLE limits range from $ 235,000 to $ 529,000.
Also, SSI recipients with ABLE accounts should know that their SSI payments will be suspended if their ABLE balance exceeds the SSI resource limit.
Can employers offer ABLE accounts?
Yes. Indeed, disability advocates strongly encourage employers to offer ABLE accounts. According to the ABLE NRC website, “An ABLE account can be used to support employees’ skills and increase their productivity, resulting in a diverse, valued and productive workforce.”
Employers interested in providing ABLE accounts as employee benefits should first read ABLE NRC’s Employer Toolkit.
What does the IRS’s new definitive rule mean for ABLE accounts?
In October 2020, the IRS published final rules with updated guidelines on ABLE accounts. The rules include (among others):
- Qualified ABLE programs, including residency requirements and multi-state programs
- Establish ABLE accounts, including eligibility, signature authority and disability certification
- Limiting the number of ABLE accounts an authorized person can have
- ABLE contributions, distributions, and rollover from qualified curricula
- Qualified disability costs
- Tax Consequences of ABLE Contributions for the Transfer of Gifts and Generations
- Record-keeping and reporting obligations
Observers say the final rules, while well-intentioned and detailed, require further clarification.
How can individuals open an ABLE account?
Eligible individuals can open an ABLE account through the government’s ABLE program website. In addition, the ABLE NRC provides a complete roadmap for registration.
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