ABLE Accounts Have Advantages Under the New Tax Law

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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.

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About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.


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Mar 18th 2018 02:57

Self funded ABLE account question- I understand that a gift to an ABLE account beneficiary can be no more than $15,000 per year But if a disabled person has an account already, and meets the requirements (had eligible disability diagnosed at 26 yrs old or younger and qualified for SSDI or SSI at that time) how much can the disabled person put in if the ABLE account if the ABLE account is self funded? Example - Say the disabled person received a substantial legal settlement of S200,000, could that entire amount be deposited into his or her own ABLE account in that year? Is there a yearly limit to how much can be put in, or is it only limited by the total accumulated allowable amount of the ABLE account?

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