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What are ABLE savings plans?
On December 19, 2014, the Achieving a Better Life Experience (ABLE) Act was enacted as part of P.L.
113-295. This Act permitted states to establish tax-advantaged savings accounts for certain individuals with disabilities to use for certain disability-related expenses. An ABLE account allows individuals with a disability to save and invest money without losing certain federal benefits. Income from the account is tax-free when used for qualified expenses.
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Who is an eligible individual who may open an ABLE account?
An individual who became blind or disabled before the age of 26 is eligible to open an ABLE account. Age at diagnosis is not a factor as long as the disability began before age 26.
A disabled individual may be eligible if either of the following applies:
- The individual is entitled to benefits based on blindness or disability under Title II or XVI of the Social Security Act.
- The individual files a disability certification with the qualified ABLE program, including a diagnosis relating to the relevant impairment or impairments signed by a physician. The disabled individual must certify one of the following:
- They have a medically determinable physical or mental impairment which results in marked and severe functional limitations, which (a) can be expected to result in death or (b) lasted or can be expected to last for a continuous period of not less than 12 months
- They are blind within the meaning of section 1614(a)(2) of the Social Security Act
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Who is considered the owner of the account?
The designated beneficiary is the eligible individual who established and is the owner of the ABLE account. However, if the eligible individual is a minor child or is otherwise incapable of managing the account, the individual's agent, under a power of attorney, or if none, a parent or legal guardian can establish the account for the eligible individual.
A designated beneficiary is limited to only one ABLE account at a time.
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Are ABLE accounts available in Wisconsin?
Wisconsin does not currently have its own ABLE account program. However, it has adopted the provision of federal law that permits ABLE accounts to be established in any state, not just in the state of residence of the disabled individual. Wisconsin residents with disabilities may establish an ABLE account in another state that has contracted with their provider to allow nonresidents to create ABLE accounts. Additional information can be found on the ABLE National Resource Center website.
Note: 2023 Wisconsin Act 267 directs the Wisconsin Department of Financial Institutions (DFI) to implement an ABLE account program for Wisconsin residents. DFI has until August 2025 to study and determine the best way to implement that program.
Based on information from the ABLE National Resource Center, the following states have launched their ABLE programs as of November 14, 2024:
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wyoming
ABLE programs in the following states are available to residents of other states:
Alabama
Alaska
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Georgia
Hawaii
Illinois
Indiana
Iowa
Kansas
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Montana
Nebraska
Nevada
New Jersey
New York
North Carolina
Ohio
Oregon (ABLE for All)
Pennsylvania
Rhode Island
Virginia
More states may become available at a later date.
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Who may claim a subtraction for contributions to an ABLE account?
A Wisconsin subtraction from federal adjusted gross income is allowed for the amount deposited in the taxable year into an ABLE account by an account owner or any other person. This subtraction does not apply to rollovers or transfers to the account.
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How much can be contributed to an ABLE account in a year?
The maximum amount of annual contributions that may be made by all contributors to an account for a particular beneficiary is the federal gift tax exclusion amount for the year ($18,000 for 2024).
An additional amount of contributions is allowed as a subtraction by a designated beneficiary equal to the lesser of the following:
- The designated beneficiary's compensation (included in gross income for the taxable year)
- The federal poverty line for a one-person household for the prior calendar year ($14,580 for 2024)
This increase is only allowed if the designated beneficiary is an employee and no contributions have been made to a defined contribution plan, annuity contract, or deferred compensation plan. See the
Schedule SB and Schedule M instructions for additional information.
Note: Amounts rolled over from a qualified tuition program to an ABLE account of the designated beneficiary, or a member of the family of the designated beneficiary, are not required to be added to Wisconsin income. The amount rolled over cannot exceed the annual contribution limit. While this amount may be rolled over, the subtraction is not allowed for the amount rolled over.
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Is there a penalty if the maximum contribution is exceeded?
The ABLE program must return to the contributors the excess contributions (amount over the gift tax exclusion amount) and the earnings on those contributions on or before the due date (including extensions) of the owner's income tax return. Excess contributions and earnings that aren't returned by the ABLE program to the contributors by the due date are subject to a federal 6% additional tax. The Wisconsin penalty is 33% of this amount.
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Do I need to pay tax on distributions from an ABLE account?
To the extent not included in federal adjusted gross income, an addition to income is required for either of the following:
- Any amount withdrawn from a qualified ABLE account for any reason other than the payment of qualified disability expenses for the account beneficiary
- Any amount in an account that is returned to the account owner or the account owner's estate upon termination of the account due to the death of the account owner or account beneficiary
If the total amount distributed during a year is more than your qualified disability expenses for that year, the earnings portion (interest, dividends, or other gain) of the nonqualified distribution (excess distribution over your qualified expenses) is included in your federal income for that year. These earnings must also be included in Wisconsin income.
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What are qualified disability expenses?
"Qualified expenses" are any expenses related to the account beneficiary's blindness or disability that are made for the benefit of an account beneficiary, including:
- Education
- Housing
- Transportation
- Employment training and support
- Assistive technology
- Personal support services
- Health
- Prevention and wellness
- Financial management
- Administrative services
- Legal fees
- Expenses for oversight and monitoring
- Funeral and burial expenses
- Other expenses, which are approved by the Internal Revenue Service under regulations and consistent with the purposes of ABLE programs
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May I claim medical expenses, paid with funds withdrawn from an ABLE account, for the itemized deduction credit?
No. Medical expenses claimed as federal itemized deductions are not allowed in computing the Wisconsin itemized deduction credit to the extent the funds used to pay the expenses were withdrawn from an ABLE Program account.
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Where can I get more information on ABLE accounts?
Additional information can be found in federal Publication 907,
Tax Highlights for Persons with Disabilities, and the Social Security Administration
website.