IRS Releases Proposed Regulations on Changes to the Limits on Contributions to ABLE Accounts

The IRS released proposed regulations regarding changes to limits on contributions to Achieving a Better Life Experience (ABLE) accounts. The new proposed regulations seek to clarify changes made to ABLE account rules by the Tax Cuts and Jobs Act (TCJA).

The proposed regulations clarify rules on:

  • Additional contributions by an employed designated beneficiary before 2026
  • The definition of poverty line for additional contributions before 2026 and
  • The return of excess contributions to a designated beneficiary.

The TCJA made major changes to ABLE accounts.  Those changes allowed eligible individuals to put more money in to their ABLE accounts and allowed them to roll money from their qualified tuition programs (529 plans) into their ABLE accounts.  It also allowed certain contributions made to ABLE accounts by low and moderate income workers eligible for the Saver’s Credit.

ABLE accounts are established to help people with disabilities pay for qualified disability expenses, such as housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services.  None of these expenses is covered by Medicaid or other government programs.  It allows the beneficiary to save money in a tax deferred account and can be withdrawn tax-free if used for qualified expenses.

Prior to the changes by the TCJA, contributions up to $15,000, the annual gift-tax exclusion amount, could be made to an ABLE account for the designated beneficiary.  After the TCJA, if the beneficiary works, the beneficiary can also contribute part or all of their income to their ABLE account. For years 2018 through 2025, the additional contribution made can be the lesser of (1) his or her compensation includible in gross income or (2) the federal poverty line for a one-person household for the year.  Also, the employed designated beneficiary, or the person acting on his or her behalf is solely responsible for seeing that the requirements for the additional contributions are met. 

The proposed regulations also clarified the definition of the applicable poverty line for determining the limit on additional contributions and indicated that the poverty line used is based on the beneficiary’s residence and not the state where the ABLE account is established.

And finally, the proposed regulations indicated that it is the responsibility of the employed designated beneficiary to identify and request the return of the contributions that exceed the additional contribution limits in 2018 to 2025.  The return of the contributions must be made by the due date of the return of the beneficiary, including extensions.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2021 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Given the Proposed Changes in President Joe Biden’s Tax Plan, Could A Non-Qualified Annuity Make Sense?
Education About Student Loans
Financial Boot Camp Series: To Refi or Not to Refi, That Has Been the Question
SD Focus on Women Spotlight: Rachel Carson
SDWMA Named as one of the Nation's Top DC Advisor Teams in 2020 by NAPA
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Map of Pittsburgh Office

One PPG Place, Suite 1700
Pittsburgh, PA 15222

[email protected]
p:412.261.3644     f:412.261.4876

Map of Columbus Office

65 East State Street, Suite 2000
Columbus, OH 43215

[email protected]
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102

[email protected]

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.