A little noticed law enacted five years ago-the Achieving a Better Life Experience (ABLE) Act- is designed to benefit families with a disabled individual.  Strategy: Set up an ABLE account for the family member.  These tax-favored accounts, run by the states, operate much like Section 529 plans for education savings.  Furthermore, the Tax Cuts and Jobs Act (TCJA) enhances the benefits of ABLE accounts.  Here’s the whole story: With an ABLE account, there’s no current tax on the earnings within the account and distributions for qualified expenses are tax free.  Qualified expenses include payments for education, housing, transportation, employment training and support, assistive technology, personal support services, healthcare expenses and financial management and administrative services.  ABLE accounts are restricted to individuals who experienced the onset of a significant disability before age 26.  If someone meets this requirement and is already receiving Supplementary Security Income (SSI) and/or Medicaid benefits, he or she is automatically eligible to participate.  However, if total assets in the account exceed $100,000, the beneficiary’s SSI will be suspended until the balance drops below $100,000.  Contributions can be made by virtually anyone- parents, other family members, friends or the disabled individual.  But the annual limit for contributions from all sources is the same as the annual gift tax exclusion ($15,000 for 2019).  Under the TCJA, a designated beneficiary who meets certain requirements may make additional contributions above the gift tax exclusion amount.  The extra contribution is limited to the lesser of the designated beneficiary’s annual income or an amount equal to the poverty line of a single person.  Finally, the total limit on contributions is subject to the state limit for Section 529 accounts, with certain modifications.  In many states, this overall limit exceeds $300,000.  A disabled individual may benefit from only one ABLE account.  As with Section 529 plans, participants can choose from a variety of investment options.  Tip: The TCJA also authorizes rollovers from 529 plans to ABLE accounts.

Small Business Tax Strategies

August 2019