What is an ABLE Account?
The word “ABLE” stands f3or Achieving a Better Life Experience Act. An ABLE account is a tax-advantaged savings vehicle that can be established for a designated beneficiary who is disabled.
The Internal Revenue Service released proposed regulations implementing a new federal law authorizing states to offer specially-designed tax-favored ABLE accounts to people who become disabled before age 26.
What are able accounts used for?
ABLE accounts offer tax-free investment growth and tax-free withdrawals when the funds are used to pay for qualified expenses such as education costs, qualified disability expenses, job training and support, healthcare and financial management. Tax treatment is similar to traditional 529 plans.
Are there limits to how much money aan be put in an ABLE account?
The total contributions by all participating individuals is $15,000 per year.
Who qualifies for ABLE accounts?
Individuals with significant disabilities with onset of disability before turning 26 years of age are eligible for ABLE accounts. If you meet this age criteria and are also receiving benefits already under SSI and/or SSDI, you are automatically eligible to establish an ABLE account.
Are contributions tax deductible?
Contributions to an ABLE account are not deductible.
Are earnings taxable?
Earnings in the account are tax deferred (postponed).
Are Distributions Taxable?
Distributions are tax-free up to the amount of the designated beneficiary’s qualified disability expenses that includes basic living expenses such as housing, transportation, education, and medical.
Are there other advantages to ABLE accounts?
ABLE accounts also enjoy a major non-tax advantage. The balance in an ABLE account and distributions used to pay qualified disability expenses are generally disregarded in determining eligibility for federal means-tested programs. This allows the beneficiary to save for the future without sacrificing current benefits.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at firstname.lastname@example.org.