Tax Tip 2020-160: ABLE accounts are a valuable benefit for taxpayers with disabilities

Internal Revenue Service (IRS) sent this bulletin at 11/24/2020 09:43 AM EST

IRS Tax Tips

November 24, 2020

Issue Number: Tax Tip 2020-160

ABLE accounts are a valuable benefit for taxpayers with disabilities

Living with a disability can come with additional expenses. Achieving a Better Life Experience accounts are authorized tax-advantaged 529A accounts that help disabled people pay qualified disability-related expenses.

Here are some key things people should know about these accounts.

Annual contribution limit

The limit remains $15,000 in 2020.
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
- The poverty line for a one-person household. For 2020, this amount is $12,490 in the continental U.S., $15,600 in Alaska and $14,380 in Hawaii.

Saver’s credit

ABLE account designated beneficiaries may now 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 now 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 $15,000 annual contribution limit would be met by parents contributing $10,000 to their child’s ABLE account and rolling over $5,000 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, as long as 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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Tax Tip 2020-160: ABLE accounts are a valuable benefit for taxpayers with disabilities

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Issue Number: Tax Tip 2020-160