529 plans may now be rolled over to ABLE accounts without a penalty, that is, provided that the ABLE account is owned by the designated beneficiary of that 529 account (child), or a member of such designated beneficiary’s family. Such rolled-over amounts count towards the overall limitation on amounts that can be contributed to an ABLE account within a taxable year. Both accounts must have the same beneficiary or a member of the same family, and you can roll over up to the annual gift exclusion amount, which is $15,000 in 2018. Starting at a young age and investing the accounts for growth goes a long way to fully funding a child’s college education.

A Coverdell ESA is a savings account that is set up to pay the qualified education expenses of a designated beneficiary. They can be opened at any US bank or IRS-approved entity. Who can have a Coverdell ESA? Any beneficiary under 18 or with special needs. The contributions are not deductible but realize that any earnings are not taxed while in the ESA and so long as you use the funds solely for the beneficiary’s qualified education expenses each year, there is no taxation for that year.

The annual contribution limit is $2,000 for each beneficiary no matter how many accounts exist for that beneficiary or how many individuals contribute.

Can contributions of stock or bonds be made to a Coverdell ESA? Only cash contributions are allowed.

When must contributions stop? No contributions may be made to a beneficiary’s account after they reach 18, except for special needs beneficiaries.

Sec. 11024 temporarily increases the contribution limitation to ABLE accounts under certain circumstances. While the general overall limitation on contributions (the per-donor recipient annual gift tax exclusion ($15,000 for 2018)) remains the same, the limitation is temporarily increased with respect to contributions made by the designated beneficiary of the ABLE account. Under the temporary provision, after the overall limitation on contributions is reached, an ABLE account’s designated beneficiary may contribute an additional amount, up to the lesser of (a) the Federal poverty line for a one-person household; or (b) the individual’s compensation for the taxable year.

Additionally, the provision temporarily allows a designated beneficiary of an ABLE account to claim the saver’s credit for contributions made to his or her ABLE account.

ABLE Accounts, which are tax-advantaged savings accounts for individuals with disabilities and their families, were created as a result of the passage of the ABLE Act. The beneficiary of the account is the account owner, and income earned by the accounts will not be taxed. Contributions to the account made by any person (the account beneficiary, family and friends) will be made using post-taxed dollars and will not be tax deductible, although some states may allow for state income tax deductions for contribution made to an ABLE account.

Millions of individuals with disabilities and their families depend on a wide variety of public benefits for income, health care and food and housing assistance. Eligibility for these public benefits (SSI, SNAP, Medicaid) require meeting a means or resource test that limits eligibility to individuals to report more than $2,000 in cash savings, retirement funds and other items of significant value. To remain eligible for these public benefits, an individual must remain poor. For the first time in public policy, the ABLE Act recognized the extra and significant costs of living with a disability. These include costs, related to raising a child with significant disabilities or a working age adult with disabilities, for accessible housing and transportation, personal assistance services, assistive technology and health care not covered by insurance, Medicaid or Medicare.

Eligible individuals and their families are allowed to establish ABLE savings accounts that will not affect their eligibility for SSI, Medicaid and other public benefits. The legislation explains further that an ABLE account will, with private savings, “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.”

The ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If you meet this age criteria and are also receiving benefits already under SSI and/or SSDI, you are automatically eligible to establish an ABLE account. If you are not a recipient of SSI and/or SSDI, but still meet the age of onset disability requirement, you could still be eligible to open an ABLE account if you meet Social Security’s definition and criteria regarding significant functional limitations and receive a letter of certification from a licensed physician. You need not be under the age of 26 to be eligible for an ABLE account. You could be over the age of 26, but must have had an age of onset before the individual’s 26 birthday.

The total annual contributions by all participating individuals, including family and friends, for a single tax year is $15,000 for 2018. The amount may be adjusted periodically to account for inflation. Under current tax law, $15,000 is the maximum amount that individuals can make as a gift to someone else and not report the gift to the IRS (gift tax exclusion). The total limit over time that could be made to an ABLE account will be subject to the individual state and their limit for education-related 529 savings accounts. Many states have set this limit at more than $300,000 per plan. However, for individuals with disabilities who are recipients of SSI, the ABLE Act sets some further limitations. The first

$100,000 in ABLE accounts would be exempted from the SSI $2,000 individual resource limit. If and when an ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit would be suspended until such time as the account falls back below $100,000. It is important to note that while the beneficiary’s eligibility for the SSI cash benefit is suspended, this has no effect on their ability to receive or be eligible to receive medical assistance through Medicaid.

Additionally, upon the death of the beneficiary the state in which the beneficiary lived may file a claim to all or a portion of the funds in the account equal to the amount in which the state spent on the beneficiary through their state Medicaid program. This is commonly known as the “Medicaid Pay-Back” provision and the claim could recoup Medicaid related expenses from the time the account was open.

A “qualified disability expense” means any expense related to the designated beneficiary as a result of living a life with disabilities. These may include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses which help improve health, independence, and/or quality of life.

Distributions from an ABLE account are excludable from income to the extent that the total distribution does not exceed the qualified disability expenses of the designated beneficiary during the taxable year. If a distribution from an ABLE account exceeds the qualified disability expenses of the designated beneficiary, a pro rata portion of the distribution is excludable from income. The portion of any distribution that is includible in income is subject to an additional 10-percent tax unless the distribution is made after the death of the beneficiary.

Do you need an extension to file tax returns? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

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