The January/February issue of our AchievABLE™ Newsletter contains stories on the following:
- Important ABLE Updates
- Register for the Upcoming Webinar: ABLE and Tax Time Tips
- NEW! ABLE Decision Guide
- Register for America Saves Week 2022: Building Financial Resilience
- AchievABLE™ Top 3 Questions
Important ABLE Updates
ABLE Plan Contribution Increases for 2022:
Annual Contribution Limit: $16,000 (This limit is a federal limit that is the same in all states and does not include additional ABLE to Work contributions.)
ABLE To Work Act Contribution: An account owner who is employed, and who has not contributed or whose employer has not contributed to a defined contribution plan, an annuity contract or an eligible deferred compensation plan, may contribute additional money to his or her ABLE account within the calendar year. The additional amount that may be contributed is whichever is less: up to the account owner’s employment income or the poverty level for a one-person household, for the prior calendar year. For 2022, this is up to $12,880 for residents of the continental U.S.; $16,090 for residents of Alaska and $14,820 for residents of Hawaii.
ABLE Account Statistics:
As of the final quarter of 2021, according to ISS Market Intelligence, there were 112,131 529(A) ABLE accounts, with $1,044 million, (that is more than $1 billion in assets) invested in ABLE (529A) accounts. This means that the average amount saved in ABLE accounts at the end of 2021 was $9,315.
Register for the Upcoming Webinar: ABLE and Tax Time Tips (2/24/22)
Join us for our “ABLE Tax Time Tips” webinar on Thursday, February 24, from 2:00 PM ET – 3:30 PM ET, to learn how you can increase your ABLE savings and qualify for tax incentives now and in the future.
This may result in significant tax savings and/or a refund you can deposit directly into your ABLE account. Hear how ABLE account owners like you have maximized their ABLE savings through tax deductions and credits, and how you can do the same!
In this webinar, we will:
- Discuss tax incentives, deductions and refunds to build ABLE savings;
- Share why you should consider filing taxes even if you are not required to file;
- Tell you about free tax filing options;
- Cover guidance that will help ABLE account owners’ 2021 tax filing; and
- Identify steps now that may benefit your ABLE account in 2022 tax filing.
- Don Dill, IRS Senior Tax Analyst with SPEC Headquarters, will provide an introduction and overview;
- Miranda Kennedy, Director, ABLE National Resource Center; and
- Laurie Schaller, Manager, Financial Empowerment, National Disability Institute
This webinar will apply tax and ABLE account information presented through real-life situations as one way to increase your level of understanding.
Vanessa is an employed ABLE account owner who lives with her parents and is saving for a down payment on her first home. She has no children and she would like to verify that she has maximized her ABLE contributions in 2021. Here were her 2021 contributions into her ABLE account:
- She saved $5,000 of her $10,000 of employment earnings in her ABLE account. Although she could have saved other income, she made the decision to have the earnings saved directly to her ABLE account. Neither Vanessa nor her employer made contributions into her retirement account in the calendar year. Note: Additional ABLE to Work contributions may not be made in a year when contributions were made into the ABLE account owner’s: Defined contribution plan such as a 401(a) or 403(a) plan; a 403(b) contract; or an eligible, deferred compensation plan such as a Section 457(b) plan.
- She saved $2,000 in unemployment compensation;
- She received $12,000 from Social Security Disability Insurance (SSDI). Of this, she paid her parents $6,000 for room and board and she saved the rest in her ABLE account. Her parents, in turn, contributed half of this, or $3,000 of the room and board money, into her ABLE account to help her to meet her goal sooner;
- She claimed the Earned Income Tax Credit (EITC) for tax year 2020 and received $538 directly deposited into her ABLE account in Spring 2021; and
- She received an economic stimulus payment of $1,400 and deposited it into her ABLE account.
QUESTION: Is the $17,938 Vanessa contributed to her ABLE account an allowable amount?
ANSWER: Contributions may be made by any source including friends, family, a trust, rollover of a 529 college savings account, earnings, retirement distributions, etc. Special needs trusts and pooled trusts are taxed at a high rate. It may be an advantage to discuss transfers from these accounts directly into an ABLE account for qualified disability expenses.
- Vanessa and her parents’ ABLE contributions totaled $17,938 in 2021.
- The 2021 contribution limit from all sources was $15,000 (this limit increased to $16,000 in 2022), so this amount seems to be in violation at first glance.
- However, as an employed person who did not have contributions made to a retirement account, Vanessa was eligible to make additional contributions under the ABLE to Work Act. She was only able to save half of her earnings so that she could pay down debt.
In this example, if Vanessa was able to do so, she could have saved the entire $10,000 of her employment earnings in her ABLE account last year. The total contributions would then have been $22,938!
If Vanessa receives a tax refund this year, she can save all or a portion of it in her ABLE account.
With contributions last year of $17,938, Vanessa is halfway to her goal of having enough of a down payment to purchase her first home, a qualified disability expense!
So, the answer is yes, Vanessa could contribute $15,000 from all combined sources, plus up to an additional $10,000 from her employment earnings, into her ABLE account in 2021. The contributions had to be made by the last day of calendar year 2021.
NEW! ABLE Decision Guide: Selecting and Opening an ABLE Account
The ABLE National Resource Center’s ABLE Decision Guide Series has been designed to increase ABLE account owners’ and their families’ understanding and assist in decision-making. This interactive series of step-by-step guides on specific ABLE topics allows for a variety of pathways and outcomes depending on the individual ABLE account owner’s circumstances and needs.
Check out the newest ABLE Decision Guide: Selecting and Opening an ABLE Account
This guide covers the following three action steps: 1) Choosing an ABLE account, 2) Learning who can open an ABLE account and 3) Details about completing the ABLE plan application.
Check out the first five (5) ABLE Decision Guides covering the following topics:
- Determining ABLE Eligibility
- Finding Funds to Save in Your ABLE account
- Determining Whether Something Is a Qualified Disability Expense
- Understanding ABLE Account Savings and Public Benefits
- ABLE Accounts for Working People with Disabilities
Watch this short video to learn more: Using the ABLE NRC Decision Guides
Register for America Saves Week 2022: Building Financial Resilience
America Saves Week 2022 has a single focus: building financial resilience. Just like in past years, America Saves Week will be a time to encourage those in your community to do a financial check-in to get a clear view of their finances.
Each day will have a theme that centers on one of five critical areas of financial wellness. This year, we’ll approach those themes through the lens of supporting individuals as they build financial resilience. We’ll also address socio-economic barriers that affect the ability of many Americans to save.
Save Automatically | Monday, February 21, 2022
Save for the Unexpected | Tuesday, February 22, 2022
Save to Retire | Wednesday, February 23, 2022
Save by Reducing Debt | Thursday, February 24, 2022
Save as a Family | Friday, February 25, 2022
AchievABLE™ Top 3 Questions
1. I am paying a caregiver from my adult child’s ABLE account. She is unable to care for herself and needs 24-hour supervision. Please confirm whether this is a qualified disability expense and who gives the caregiver the tax forms (Form 1099 or Form W-2)?
Caregiver services are a qualified disability expense which enhances the health, independence and quality of life of a person with a disability. It is acceptable to pay for the services performed for an ABLE account owner from the ABLE account.
Workers who perform services for elderly or disabled individuals are typically employees of the individuals for whom they provide services because they work in their home and they have the right to tell caregivers what needs to be done.
In some cases, the caregiver is self-employed and would be responsible for filing their own income taxes on their 1040. The person with a disability may or may not be required to issue a Form 1099. Please check with your tax practitioner and see IRS Guidance on Family Caregivers and Self-Employment Tax and Publication 926, Household Employer’s Tax Guide for more information.
2. I am unable to work. Do I need to file taxes because I have an ABLE account?
An ABLE account owner does not need to file taxes simply because they have an ABLE account.
However, a person who is employed is encouraged to file income taxes to possibly become eligible for tax credits such as EITC (federal and some states) and/or savers credit. Eligible families who did not receive any advance Child Tax Credit payments can claim the full amount of the Child Tax Credit on their 2021 federal tax return, filed in 2022. This includes families who don’t normally need to file a tax return.
An ABLE account owner who works and files income taxes may earn quarters towards insured status through the Social Security Administration (SSA), which may determine eligibility for a non-means-tested disability benefit or increase their retirement benefit in the future.
A person who does not work, but receives SSDI, retirement income, investment earnings or dividends may need to file income taxes.
Free tax preparation services are available virtually: call 211 to find your closest free tax preparation site or register to attend the ABLE NRC Tax Time Tips webinar on February 24th.
3. If a third party contributor (such as a grandparent, parent, sibling or other party) makes non-ABLE gift contributions to an ABLE account owner, in addition to the ABLE contribution, is there tax liability?
There may be tax liability to the contributor if the contributor’s total gifts to the ABLE account owner exceeds the annual gift tax exclusion. For example, in 2022 the gift tax exclusion is $16,000, the same limit as the ABLE contribution limit. Here is an example: If John’s grandfather gifts his grandson, the ABLE account owner, with $10,000 in stocks to a non-ABLE investment account AND in the same tax year contributes $12,000 to his grandson’s ABLE account, there would be tax liability for the grandparent: $22,000 in gifts minus the gift tax exclusion equals tax on $6,000. If John’s grandson receives a means-tested, federally-funded benefit, there could be eligibility issues also.