The maximum amount that can be contributed each year to an ABLE account for a person with disabilities rose $1,000 to $16,000 on January 1, 2022. The figure, which is tied to the inflation-adjusted value of the IRS’s gift tax exclusion, had been stuck at $15,000 since 2018. Meanwhile, all but four states now offer ABLE programs.
Congress passed the Achieving a Better Life Experience (ABLE) Act in 2014, amending the Internal Revenue Code to allow families to create new tax savings plans, modeled after the popular 529 savings plans for higher education, that allow money to be set aside for or a person with special needs to pay for disability related expenses. This money can grow tax-free over time and is used to pay for qualifying expenses toward the care and support of the special needs beneficiary.
These accounts are administered by the individual states and accept contributions in the form of cash only (not bonds, securities, real estate, or other assets). A major benefit of ABLE accounts is that the beneficiary can manage and control them once he or she comes of age.
People with disabilities who are employed can save even more beyond the $16,000 limit in an ABLE account, up to the federal poverty level for a single individual. This means that those in the lower 48 states can invest an additional $12,880 this year. Hawaii residents can save an extra $14,820 and the figure is $16,090 in Alaska.
However, the total amount that can be held in an ABLE account without jeopardizing government benefits like Supplemental Security Income (SSI) remains at $100,000. For individuals who are not receiving such means-tested benefits, the maximum account limit is tied to the account limit for the particular state’s 529 programs, which in 2022 can range from $300,000 to $517,000.
As of January 2022, 46 states and the District of Columbia had set up ABLE programs, although if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. The newest states to add programs are Connecticut and Utah. Four states – Idaho, North Dakota, South Dakota and Wisconsin -- do not yet have active ABLE programs, according to the ABLE National Resource Center. For a directory of state programs, click here.
Academy of Special Needs Planners member Oak Wealth Advisors offers a map showing which state programs are open to all and a matrix that compares the state ABLE programs. Click here and scroll down to “3. National availability of ABLE accounts by state”.
For an introduction to ABLE, click here.
For an article comparing ABLE accounts with special needs trusts, click here.
This information is not intended to be a substitute for specific individualized tax, legal or estate planning advice as individual situations will vary. Neither Royal Alliance Associates, Inc., nor its registered representatives or employees, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
Securities and investment advisory services offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc. Special needs consulting services are not offered through Royal Alliance Associates, Inc.
Content provided by the Academy of Special Needs Planners, Copyright 2022