Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings accounts for people who have disabilities and their family members. These accounts are useful to assist people with disabilities pay qualified disability-related expenses without affecting their eligibility for government assistance programs. Distributions are tax-free if used for qualified disability expenses.
The annual contribution limit is $15,000 in 2021. Certain employed ABLE accounts may make additional contributions up to either the designated beneficiary’s compensation for that tax year or the poverty line for a household of one person. The poverty line for 2021 is $12,880 in the continental US, $16,090 in Alaska, and $14,820 in Hawaii.
Some designated beneficiaries may be eligible to claim the saver’s credit for a percentage of their contributions. The beneficiary can claim said credit on Form 8880 (linked at the bottom). The saver’s credit is non-refundable and available to individuals who meet the following requirements: at least 18 years of age, not a dependent or a full-time student, and can meet the income requirements.
Families may rollover funds from a 529 plan to another family member’s ABLE account. Although, the ABLE account must be for the same beneficiary as the 529 account or for a member of the same family as the account holder. Rollovers from a section 529 plan count toward the annual contribution limit.
States can offer ABLE accounts to help people who become disabled before the age of 26 or their families pay for disability-related expenses. Some expenses may include transportation, housing, and/or education. These contributions are not deductible for federal tax purposes. Distributions, including earnings, are tax-free to the beneficiary if they are used to pay for qualified disability expenses.
Form 8880: https://www.irs.gov/pub/irs-dft/f8880–dft.pdf
Distributions From ABLE Accounts and ABLE Account Contribution Information form instructions: