April 28, 2023 2:43 am

IRS Explains Some Points for ABLE Accounts

Achieving a Better Life Experience Act of 2014 created ABLE accounts to let certain disabled individuals save money without jeopardizing eligibility for government benefits. In an informal statement (INFO 2023-003), the IRS addressed some matters that some taxpayers may have heretofore found unclear.

  • If a contribution is made by a company to an employer-maintained plan on behalf of a designated beneficiary of an ABLE account, the beneficiary would not be eligible to make an ABLE account contribution for the year in which the contribution to the employer-sponsored plan was made.
  • For purposes of making an additional contribution to an ABLE account based on the beneficiary’s compensation, the term “compensation” does not include amounts received as a pension or annuity.
  • A rollover from a 529 plan to an ABLE account before January 1, 2026, is not a taxable distribution as long as the rollover is limited to the amount, when added to all other contributions made to the ABLE account for the year, does not exceed the contribution limit for the ABLE account (e.g., $17,000 in 2023).
  • The designation of an individual as disabled by his or her employer is not relevant to whether the designated beneficiary of an ABLE account is an eligible individual. The only acceptable means are by a Social Security disability designation or a disability certification filed with the IRS for the year.
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Tax Glossary

Material participation tests

Rules for determining whether a person is active in a business activity for passive activity rule purposes. Unless the tests are met, passive loss limits apply.

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