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Tax Advantaged ABLE Accounts

April 30, 2021
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Most parents and grandparents know about the 529 educational accounts to help pay for school expenses.  However, tax advantaged ABLE accounts are a relatively new investment option to help special needs children.

Let's take a look at these ABLE accounts:

Can be opened for anyone who has become blind or disabled before the age of 26 that can help them maintain their health, independence, and quality of life.

They generally allow non-deductible contributions up to $15,000 a year.  In addition, working disabled persons are eligible to open their own accounts and make contributions over the $15,000 annual limit.  This additional yearly contribution is limited to the poverty level for a single person, or $12,880 for 2021 adjusted for inflation.  Note:  This figure is higher in Alaska and Hawaii.  

A lifetime lump-sum payment per donor is limited to 5 times $15,000 per year, which is the same limit of the 529 plan.

Withdrawals of earnings on ABLE accounts are tax-free if used for housing, transportation, education, job training, health needs, etc.  Earnings used for non-qualified purposes are taxed and hit with a 10% penalty.  

Account owners remain eligible for Medicaid and ABLE account balances of $100,000 or less do not affect Social Security Income (SSI) benefits.

There are limited rollovers available from a beneficiary's 529 account into an ABLE account.

Over 40 states and the District of Columbia have ABLE tax preferred savings programs available.  The residents in the few outlying states without current active programs can open an ABLE account in another state that makes it's programs available to non-residents.

Overall, these accounts can be great tax-advantaged plans to allow disabled children and young adults the ability to save yet maintain SSI benefits that are so important.

 

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Waddell & Reed and its representatives do not offer tax advice.  Please consult with the appropriate financial professionals regarding your personal situation prior to making any financial related decisions.  (04/21)