Due to new tax laws passed in 2017, individuals with special needs can make more contributions to their ABLE accounts than they could in the past. ABLE accounts are special savings accounts that have tax advantages. They can be established for people with special needs, and the money in them can be used to pay for certain types of expenses.
Before 2018, an individual with special needs and his or her relatives could contribute only $14,000 or less total to an ABLE account each year. The total contribution amount is tied to the federal gift tax annual exclusion amount, which was $14,000 in 2017. The annual exclusion amount rose to $15,000 at the beginning of 2018, and the ABLE account contribution limit rose to $15,000 too.
In addition, the beneficiary of an ABLE account (a person with special needs) can now make additional contributions above the $15,000 limit. A person with special needs can contribute up to either the person’s total compensation earned in a year, or the federal poverty line amount (which is $12,060 in 2018). Depending on how much he or she earns, the potential contributions could be large. But the money contributed must belong to the person with special needs, not a relative.
There are a few exceptions to the new contribution rules. An individual with special needs cannot make additional contributions above the $15,000 limit if a relative has made contributions on his or her behalf to certain kinds of savings plans. These include defined contribution plans, annuity contracts, or eligible deferred compensation plans.
New laws also may allow individuals with special needs to get a special tax credit when they contribute money to their ABLE accounts. The nonrefundable saver’s tax credit could apply to contributions up to $2,000. However, most people with special needs have low or no tax bills in April. As a result, the tax credit will not really help them – the credit is nonrefundable, so they do not receive the extra credit money that was not used toward a tax bill as a tax refund. Finally, the new laws allow rollovers from 529 accounts to ABLE accounts, to be discussed in another blog.
The new contribution laws for ABLE accounts will allow people with special needs who work to save their income in ABLE accounts without exceeding the contribution limits and thereby avoiding the $2000 asset limitation for SSI and/or Medicaid. To learn more about taking advantage of the new laws, talk to a future planning lawyer who works with families of individuals with special needs.
Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind. For more information, email us at email@rubinlaw.com or call 866-TO-RUBIN.
