ABLE turns 7, Annual Gift Exclusion Rises

Happy Birthday ABLE - Important Updates 

After years of work by advocates, the historic moment in December 2014 arrived when the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014 (ABLE act) became law. The ABLE or 529(A) account was established to offer individuals with disabilities a tax-advantaged way to save money without impacting their eligibility for means-tested government benefits (e.g. SSI, Medicaid).

The chart below illustrates the steady growth in both the number of ABLE accounts opened and assets invested from 2016 thru 2020. Also notable is the increase in average account balance.  The growth has continued through 2021 and as of September 2021, over 105,000 ABLE accounts had been opened with $937 million in assets. (Source: ISS Market Intelligence). 

Many states offer an ABLE plan and there may be a tax incentive for residents. However it makes sense to compare your state's plan with others as they may offer additional account options, such as a debit card.  You may enroll in any ABLE program accepting out-of-state residents and for which you meet the requirements.

Two recent developments relevant to the ABLE account:

1. Annual gift tax exclusion rises to $16,000 in 2022, this raises the annual ABLE contribution limit to $16,000. While the general rule is that any gift is a taxable gift, there is an annual gift tax exclusion that is an exception to this rule. The gift tax exclusion is the maximum amount that individuals can make as a gift to someone else and not report the gift to the IRS. In 2022, the gift tax exclusion will be raised to $16,000 (from $15,000).
   Since the ABLE account has an annual contribution limit that is aligned with the IRS annual gift tax exclusion amount, the maximum annual contribution to an ABLE in 2022 will also rise to $16,000.
   In addition to the annual contribution limit, an ABLE account owner who works and does not participate in an employer sponsored retirement plan may also be eligible to make additional contributions. To learn more about this savings strategy, please read ABLE to Work, 529 Rollovers and the Saver's Credit .  Source: irs.gov 
   
   
2. Age change for ABLE eligibility proposed in Congress. In February 2021, Congress introduced the ABLE Age Adjustment Act. This legislation proposes increasing the age of eligibility of beneficiaries of ABLE accounts from the onset of disability before age 26 to onset before age 46. Currently, only individuals who have a qualifying disability prior to age 26 are eligible to open an account in an Achieving a Better Life Experience (ABLE) plan. (Source: nast.org )

To learn more about the ABLE account and strategies to incorporate into your financial planning, download our complementary resource,  The ABLE Account and Special Needs Planning.