In light of passage of the Tax Cuts and Jobs Act into law late December, let’s take a look at ABLE Accounts, which are accounts created in 2014 and are for special needs children.
Before the ABLE Account existed, the only savings vehicle available to parents with special needs children was a Special Needs Trust (SNT). The problem with SNT was that when the special needs child became an adult and applied for disability, the amount in the SNT was held against the child, lowering the amount of disability income that the child would receive. ABLE Accounts are not held against the child when they apply for disability.
The new tax law, though, has made ABLE Accounts even better for certain families.
You can put up to the gift tax limits, which is $15,000 in 2018. Or, if you are married and you and your wife elect to split your gifts, you can contribute $30,000 in 2018. However, the big change with these accounts is that you can take the proceeds in a Section 529 account and roll them into an ABLE, or vice versa.
Section 529 accounts are tax advantaged educational accounts. You can contribute up to the gift tax limits into these accounts, and they grow tax free. When money is taken out of the 529, it is tax free as long as the funds are being used for educational expenses, books, computers and lodging for students.