ABLE Accounts: Tax Shelter for Disabled Individuals

Achieving a Better Life Experience (ABLE) Act of 2014

Tax Shelter for the Disabled

The Achieving a Better Life Experience (ABLE) Act of 2014 is legislation that allows states to create tax-advantaged savings programs for eligible people with disabilities who are the designated beneficiaries. ABLEnow Accounts were created to help individuals with disabilities save significant amounts of money without risking their Federal Disability Benefits.  

The intention was to create a “tax shelter,” for disabled people.  Now, that tax shelter exists in reality. It’s based on already proven legislation.

Already Proven Legislation

The ABLE Account is a slight variation on the Section 529 Education Savings Accounts.  The main differences being the name and the purpose.  Other than that they are basically identical programs. 

The ABLE Act of 2014 created Section 529A of the Internal Revenue Code. This section is the federal legal framework that establishes the specific rules and requirements of an ABLE account. So let’s get into the eligibility details.

Eligibility Details

ABLEnow accounts are available to U.S. Citizens and legal residents, regardless of state residency. To qualify for an ABLEnow account, the “eligible individual” must be a person whose disability developed before the age of 26. Those qualified for an ABLE Account are called designate beneficiaries.

Designated Beneficiaries Retain Government Benefits

These eligible individuals are referred to as designated beneficiaries. This ABLE program is meant to increase the quality of life of these designated beneficiaries through increased availability to financial resources.  The disabled person will not lose eligibility for their government benefits such as Medicaid, SSDI or SSI due to a healthy ABLE Account. Now, normal gift tax laws are relevant. The account structure makes it easy for relatives to make direct contributions.

Relatives Can Directly Contribute Funds (Gift)

Relatives can deposit funds directly into the ABLE account to help their loved one achieve a better life experience.  Tax laws pertaining to annual gift limitations are relevant. In addition, the account holder can also deposit funds up to a set annual limit. Disabled Americans deserve every bit of assistance we can give them.

No Federal Taxes on Account Earnings

Each ABLE Account is segregated into two portions.  Those two portions are funds for current expenses and funds for investing.  The portion utilized for current expenses functions like a checking account without checks. The investment portion functions more like an IRA account. You choose your investment strategy. A Visa debit card is provided for initiating transactions.

Earnings from the investment portion of an ABLE Account are not eligible for Federal Income Tax.  And, it is possible to earn interest on the spending account. That tax exemption has some conditions that the account holder must conform with.  There are some restrictions on spending. However, this is a huge win for the disabled community.

Restrictions on Spending

Funds from these accounts are meant to help the designated beneficiaries pay for Qualified Disability Expenses.  Then all distributions are tax-free for all qualified disability expenses. Also, all interest earned and account capital gains are enjoyed tax-free. Depositing funds into an ABLE Account has multiple tax benefits. And, the Saver’s Credit is definitely one of those benefits.

Saver’s Credit Eligible

Contributions to an ABLE account will qualify for the IRS Saver’s Credit for 2020. So, every designated beneficiary qualifies for a tax credit AND legally avoids paying income tax on any interest or capital gains enjoyed by the account holder. With all of that in-mind this can be life-changing for folks who are permanently disabled. The ABLE Account is a fantastic money management tool.

Fantastic Money Management Tool

This is not just a tax shelter for handicapped people. It’s a path to financial freedom. An ABLE Account is a fantastic tool for a disabled people to amass wealth for their current and future care.  In addition, an ABLE Account is the ideal tool for investing in the future of your disabled loved one.  Again, the spending account comes with a debit card for accessing your funds.  Most disabled folks depend on their trusted advisors to provide them this kind of information.

Are You Ready to Become an Enrolled Agent?

You can go from being a tax preparer to a trusted advisor if you are always up-to-date on important information that can benefit your clients.  This environment will lead to extensive legislation to manage our nation’s economy. That makes this lockdown experience the ideal time to become an Enrolled AgentPronto Tax School can help you with that affordably and effectively. Either way, the more you know, the more valuable you are in the marketplace.

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Training for Your Needs!

Please click the button below for your primary tax credential.

Not sure which credential applies to your situation?  Click here to reach our support team and we'll help you decide.