Don't Mess With Taxes

Photo by Polina Tankilevitch

Special needs individuals and those who work with them are understandable concerned about many of the changes being made or proposed by the Trump administration and its Department of Government Efficiency (DOGE) henchmen partners.

But the Internal Revenue Service, even though it is dealing with its own DOGE issues, is reminding people with disabilities of how an Achieving a Better Life Experience, or ABLE, account can help.

The accounts were created in 2014 by the eponymous Achieving a Better Life Experience (ABLE) Act, a federal law that allows states to create tax-advantaged savings programs for eligible people. Its goal is to ease financial strains faced by individuals with disabilities by making this tax-free saving accounts available to cover qualified disability expenses.

States can offer ABLE accounts to help people who become disabled before age 26, or if their families pay for disability-related expenses detailed in IRS Publication 907, Tax Highlights for Persons with Disabilities.

ABLE contributions aren't tax deductible on federal returns. However, distributions — including earnings — are tax-free to the beneficiary if the taxpayer pays for a qualified disability expense.

ABLE options expanded in 2017: The Tax Cuts and Jobs Act (TCJA) of 2017 enhanced ABLE accounts in three key ways.

1. Contribution amounts were increased, and special rules added for the increased contribution limit.
2. ABLE account designated beneficiaries were allowed to claim the retirement Saver's Credit for the contributions to the account.
3. Rollovers in limited amounts were allowed from an ABLE account designated beneficiary’s 529 qualified tuition program to that person’s ABLE account or family member.

Here’s a closer look at how these ABLE options can help disabled individuals.

Contribution limit increase: The contribution limit for the 2025 tax year is $19,000. To count for this year, the money must be put into the ABLE account by Dec. 31.

However, certain employed ABLE account beneficiaries may contribute more. This additional contribution amount generally is allowed when an account beneficiary is working, but neither they nor their employer are making certain retirement plan contributions.

For 2025, the additional ABLE contribution is the account beneficiary’s annual compensation up to a maximum of $15,650 if the person lives in the continental United States.

The potential added contribution amount is larger in the country’s youngest states. For 2025, it is $19,550 for ABLE account beneficiaries living in Alaska and $17,990 for those in Hawai'i.

Saver's Credit bonus: The Saver's Credit is a way to boost tax-advantaged retirement savings. It is available to lower- and middle-income earners who contribute to certain retirement accounts.

The Saver’s Credit is worth up to $1,000. Since it is tax credit, it reduces any tax owed dollar-for-dollar up to the one grand max. Note, however, that the credit is nonrefundable. So, if you owe less than $1,000 the Saver’s Credit will zero out that tax debt, but you cannot get the excess credit as a refund.

ABLE account designated beneficiaries may be eligible to claim the Saver's Credit for a percentage of their contributions. This is applies to account designated beneficiaries who —

• Are at least 18 years old at the close of the taxable year;
• Are not a dependent or a full-time student; and
• Meet the income requirements.

Eligible Saver’s Credit taxpayers can claim the tax break by filing IRS Form 8880, Credit for Qualified Retirement Savings Contributions.

Section 529 rollovers and transfers: Families may roll over funds from a 529 plan, a state-created, tax-advantaged account that covers a variety of educational expenses, to an 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 do count toward the annual contribution limit.

Rollovers from a 529 to an ABLE account, plus the annual contribution to the ABLE account, cannot exceed the maximum contribution amount for the year.

For example, the $19,000 annual contribution limit for 2025 would be met by parents contributing $10,000 to their child's ABLE account and rolling over $9,000 from a 529 plan to the same ABLE account.

You can find more information on ABLE accounts at the Social Security Administration’s webpage on the law that created savings plans.

Additional account information is found in IRS Form 1099-QA, Distributions from ABLE Accounts; IRS Form 5498-QA, ABLE Account Contribution Information; the forms’ instructions; and the previously cited in IRS Publication 907.

You also might find these blog posts of interest:

• Don’t miss out on these 10 often overlooked tax breaks
• ABLE accounts offer tax-favored savings help to disabled individuals
• Tax credit & deduction for businesses that make disability accommodations

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