ABLE Changes in 2018

In Financial Freedom for People With Disabilities, I described ABLE accounts. Better Finances for People With Disabilities is a podcast I recorded about ABLE accounts. If you want more than just basic information about ABLE accounts, those posts are good resources.

Basically, ABLE accounts allow people whose qualifying disability occurred prior to their 26th birthday to save and/or invest money free of federal taxes. More impressively, the value of ABLE accounts is almost exclusively exempt from federal benefits programs where asset limits and means testing can be major problems for people with disabilities.

As the title indicates, this post is about the four changes to the ABLE program in 2018.

  1. The 2018 annual contribution increase limit
  2. The ability to roll over funds from a 529 college savings plan into an ABLE account
  3. Access to the Savers Credit

  4. Additional allowable contributions by the beneficiary resulting from employment

The 2018 annual contribution increase

In 2018, a total of $15,000 can be contributed to each ABLE account. That’s an increase from the $14,000 total contribution limit in 2017.

The ability to roll over funds from a 529 college savings plan into an ABLE account

Beginning in 2018, funds in a 529 college savings plan can be transferred to an ABLE account; however, the amount transferred to the ABLE account is subject to the annual contribution limit of $15,000 in 2018. Assuming no other money is contributed to an ABLE account in 2018, $15,000 can be rolled over to an ABLE account. If anyone contributes additional money to an ABLE account in 2018, the amount that can be rolled over from a 529 college savings plan is reduced by the value of the additional contributions. To make this absolutely clear: only $15,000 can be contributed to an ABLE account in 2018.

Access to the Savers Credit

In 2018, people contributing to their own ABLE account may be eligible for the Retirement Contributions Savings Tax Credit (Savers Credit). According to the IRS, there are three criteria that must be met before someone qualifies for the Savers Credit.

  1. You must be at least 18 years old
  2. You must not be a full-time student
  3. And you must not be claimed as a dependent by another tax filer

The amount of the nonrefundable credit depends on your income, and is a percentage of your adjusted gross income. Your gross income includes wages, dividends, capital gains distributions, and more. To get your adjusted gross income, you subtract things like payments to a traditional individual retirement account, student loan interest payments, and more from your gross income. The amount of the credit can’t exceed $2,000 for a single filer or $4,000 for a married person filing jointly with their spouse. If you’re a single filer and your adjusted gross income is more than $31,500, you don’t qualify for the Savers Credit. If you’re married and filing jointly with your spouse and your adjusted gross income is more than $63,000, you don’t qualify for the Savers Credit.

Additional allowable contributions by the beneficiary resulting from employment

Beginning in 2018, someone who is working may be able to contribute more than the $15,000 annual contribution limit to their ABLE account. The additional amount someone can contribute is the lesser of the individual’s adjusted gross income or the Federal Poverty Level. Currently, the Federal Poverty Level for an individual is $12,060 annually. This means that the most a working person can contribute beyond the $15,000 contribution limit is $12,060. The entire $27,060 annual contribution limit need not come entirely from the owner of the ABLE account. I’ll illustrate this with an example.

Let’s say Sam contributes $15,000 to Bill’s ABLE account. At that point, Bill’s ABLE account has met its annual contribution limit. If Bill is working, though, he could potentially contribute an additional $12,060 to his ABLE account. Note, once Sam contributed $15,000 no one other than Bill could contribute to Bill’s ABLE account until the following year.

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