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Two changes for ABLE
ABLE accounts are tax-advantaged savings accounts for individuals with disabilities. The annual gift-tax exclusion limit will increase to $17,000 per recipient for 2023, up $1,000 from 2022. This limit is applies an ABLE account; the total annual contributions to an ABLE account must be $17,000 or less.
The SECURE Act 2.0 legislated another change to ABLE account rules, Effective in 2026, the onset of disability age for ABLE account eligibility expands from age 26 to 46. This will allow more families to receive tax benefits when saving for their family member with special needs.
Planning strategies for 529 Plan accounts
There are popular planning strategies for parents and grandparents who want to gift money to family members (and others) that are impacted by the increase in the gift tax exclusion.
- Cash Gifts: For parents and grandparents who want to gift money to their family and others, each individual can gift up to $17,000/year to any person they choose, with no tax consequence to the donor or recipient. Done over a period of years, this can be a very effective means to control the level of assets in a taxable estate and confer benefits to descendants.
- Superfunding 529 plan contributions: The increase in gift exclusion also increases the limit for superfunding, which allows donors to contribute up to five years’ worth of contributions at once. For an individual, donors can contribute up to $85,000 ($17,000 x 5 years) per donee in 2023. Married couples electing to split gifts can contribute up to $170,000 per recipient.
- 529 Plan to Roth IRA: Beginning in 2024, 529 account owners will be allowed to roll over 529 funds to a Roth IRA for the account’s beneficiary. The 529 account must be open for at least 15 years and the amount cannot be more than the annual Roth contribution limit ($6,500 in 2023). There is also a lifetime limit of $35,000 total in the beneficiary’s lifetime. This will be beneficial for those who have left over funds in their children and/or grandchildren’s 529 plans. Note: You cannot roll over contributions or earnings from the last five years. Source: https://www.planadviser.com/529s-able-accounts-get-boost-secure-2-0/
- Considering transferring 529 funds to an ABLE?: Transfers are permitted (subject to limits) however, if there is a significant sum involved, you should do your research first. Funds in 529 accounts are generally in Parents' names and do not effect eligibility for government benefits and funds in an ABLE are subject to Medicaid reimbursement. Read more here.
There have been many tax and financial changes enacted for 2023 and there are actions and strategies that may apply to your specific situation. To take a more comprehensive look at these changes and how they may impact your planning , download a copy of Tax and Financial Planning Changes and Strategies for 2023.