People and families paying for disability-related expenses should consider an ABLE savings account

People with disabilities and their families can use Achieving a Better Life Experience or ABLE accounts to help pay for qualified disability-related expenses. ABLE accounts are tax-advantaged savings accounts that don’t affect eligibility for government assistance programs. Here are some key things people should know about these accounts.

Annual contribution limit

• The 2022 limit is $16,000.
• Certain employed ABLE account beneficiaries may make an additional contribution up to the lesser of these amounts:
  • The designated beneficiary’s compensation for the tax year or
  • For 2022, $12,880 for residents in the continental U.S., $16,090 in Alaska and $14,820 in Hawaii.

Saver’s credit

• ABLE account designated beneficiaries may be eligible to claim the saver’s credit for a percentage of their contributions.
• The beneficiary claims the credit on Form 8880, Credit for Qualified Retirement Savings Contributions. The saver’s credit is a non-refundable credit available to individuals who meet these three requirements:
  • Are at least 18 years old at the close of the taxable year
  • Are not a dependent or a full-time student
  • Meet the income requirements

Rollovers and transfers from section 529 plans

• Families may roll over funds from a 529 plan to another family member’s ABLE account.
• The ABLE account must be for the same beneficiary as the 529 account or for a member of the same family as the 529 account holder. Rollovers from a section 529 plan count toward the annual contribution limit. For example, the $16,000 annual contribution limit for 2022 would be met by parents contributing $10,000 to their child’s ABLE account and rolling over $6,000 from a 529 plan to the same ABLE account.

Qualified disability expenses

• States can offer ABLE accounts to help people who become disabled before age 26 or their families pay for disability-related expenses. These expenses include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services.
• Though contributions aren’t deductible for federal tax purposes, distributions, including earnings, are tax-free to the beneficiary, if they are used to pay qualified disability expenses.

More information:
ABLE Accounts – Tax Benefit for People with Disabilities
Publication 907, Tax Highlights for Persons with Disabilities
Form 1099-QA, Distributions from ABLE Accounts 
Form 5498-QA, ABLE Account Contribution Information
Instructions for Forms 1099-QA and 5498-QA 

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