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New ABLE accounts set to debut

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in Small Business Tax

A new tax law tacked onto the Tax Increase Pre­­­ven­­tion Act of 2014 (TIPA) is designed to provide new tax benefits to disabled individuals.  

Strategy: When appropriate, take advantage of the Achieving a Better Life Experience Act (ABLE) for a disabled family member. It authorizes use of tax-favored savings accounts.   

Although ABLE accounts aren’t available yet, individual states are expected to green-light them soon.

Here’s the whole story: ABLE accounts resemble Section 529 plan accounts used to save for higher education costs. There’s no current tax on the earnings within the account and distributions for qualified expenses are federal-income-tax free. Qualified ABLE account expenses include payments for education; housing; transportation; employment training and support; assistive technology; personal support services; health care expenses; and financial management and administrative services.

ABLE accounts must be set up to benefit an individual who experiences the onset of a significant disability before age 26. If someone meets this requirement and is already receiving Supplementary Security Income (SSI) and/or Medicaid benefits, he or she is automatically eligible to participate. However, if total assets in the account exceed $100,000, the beneficiary’s SSI will be suspended until the balance drops below $100,000. Key point: Medicaid eligibility will not be affected by amounts in an ABLE account.

Contributions can be made by anyone, but the annual limit for contributions from all sources is the same as the annual gift-tax exclusion ($14,000 for 2015). This limit will be indexed for inflation. The total limit on contributions that may be made to an ABLE account is subject to the state limit for Section 529 accounts, with certain modifications.

Tip: The U.S. Department of Treasury will be issuing additional guidance this year.

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