In our November article, we talked about the changes related to charitable giving that are brought by “One Big Beautiful Bill Act” (OBBBA). In this article, we are going to discuss the provisions of OBBBA that affect ABLE Account owners.
For those who are not familiar with Able Account, an ABLE account is a tax-advantaged savings plan for eligible individuals with disabilities. It was created by the federal Achieving a Better Life Experience (ABLE) Act. The account allows individuals to save and invest money for a variety of disability-related expenses without losing eligibility for certain public benefits like Medicaid and Supplemental Security Income (SSI). Contributions grow tax-free, and withdrawals are also tax-free as long as they are used for qualified disability expenses.
Previously, Tax Cuts and Jobs Act (TCJA) passed in 2017 introduced two additional ways to contribute to ABLE accounts. One of them is for ABLE account owners to contribute additional amount in the same calendar year if they worked and but did not participate in an employer sponsored retirement plan . The other way is through the transferring of 529 plan assets to ABLE accounts, up to the contribution limit. However, the beneficiary of the 529 plan has to be the same individual as the ABLE account owner or a sibling, step-sibling or half sibling; otherwise, the transfer would be subject to tax and penalties.
These two contribution ways were supposed to terminate at the end of this year. Now, the OBBBA has indefinitely extended them. In addition, the OBBBA also extended the availability of a non-refundable saver’s credit for ABLE account contributions. The maximum credit will increase from $1,000 to $2,100 in 2027.
With the extension of these savings benefits, ABLE accounts become even more valuable for special needs planning. Families with special needs member may consider the ABLE account as part of their planning options where the accounts are suitable.