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How the New Tax Law Affects ABLE Accounts

Updated: Dec 17, 2018

A new tax bill was signed into law on December 22, 2017. Features of the tax bill are complex and impact many areas including exemptions, deductions, and credits. Most of these changes will take effect in 2018. In the new bill, ABLE disability savings programs received enhancements and added flexibility.

An ABLE Account is a tax-advantaged savings accounts for individuals with disabilities and their families. Contributions to the account, which can be made by any person (the disabled individual, family, and friends) are not tax deductible for purposes of federal taxes, but some states allow for state income tax deductions for contributions made to an ABLE account. However, the income subsequently earned within the account is not taxed at the federal or the state level.

Virginia529, the agency that administers the ABLEnow program as well as the country’s largest college savings plan, closely monitored this new tax bill and met with legislators in December to discuss the proposal. The agency is reviewing the changes and analyzing how it will affect the programs and customers.

Mary Morris, CEO of Virginia 529 and ABLEnow, feels “excited to bring these positive changes to our ABLEnow customers.” It is her hope that future legislation will continue to remove even more ABLE Act restrictions so that additional Americans with disabilities can take advantage of this financial tool.

According to ABLEnow, these are the updates for 2018:

  • Contribution Limit: The annual contribution threshold increased from $14,000 to $15,000.

  • Savers’ Tax Credit: Individuals saving in an ABLE program may be able to take advantage of the Savers’ Credit for contributions to their ABLE account (subject to all existing eligibility and income limits).

  • ABLE Financial Planning Act: Transfers from a 529 college savings account to an ABLE account are considered a qualified distribution, providing flexibility to move funds between programs without incurring any tax or penalty.

    • The rollover can be in amounts up to the annual ABLE contribution limit.

    • Both accounts must have the same beneficiary or a member of the same family.

  • ABLE to Work Act: ABLE account beneficiaries who work will have an increased contribution limit starting in 2018, should they choose to contribute a portion of their earned income to their ABLE account. The implementation of ABLE to Work contributions will not be available on January 1, 2018.

    • Questions remain about aspects of the provision relating to these increased contributions and may require guidance from the U.S. Department of the Treasury.

    • In addition, system adjustments must be made to allow different contribution limits depending on whether the designated beneficiary is employed. The 10 days between the tax bill signing and operation of the law is insufficient to make these changes.



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