Your Blog New IRS Tax Changes Allow For Increase In Savings Ability For ABLE Accounts

Published January 26, 2023

Thanks to a change in tax rules in 2023, people with disabilities can save more without jeopardizing eligibility for benefits. Previously, beneficiaries of ABLE accounts — or, Achieving a Better Life Experience accounts — had a hard limit of $16,000, but the new limit, which includes gifts, is $17,000. 

What are ABLE accounts, why was the change implemented, and what does this mean for ABLE account holders? 

What are ABLE accounts? 

ABLE accounts were created in 2014 under a federal law called the ABLE Act. It was introduced by Senators Robert Casey and Richard Burr, Representatives Ander Crenshaw, Cathy McMorris Rogers, and Pete Sessions. The goal of the Act was to enable people with disabilities who were beneficiaries of programs like federal or state disability benefits to save, something that was difficult to the point of impossible before this Act. 

Under the ABLE Act, people with disabilities can save money for disability-related expenses, including education, transportation, and housing. Initially, the Act had no age restriction, but on February 23rd, 2021, the ABLE Age Adjustment Act was introduced to include an age restriction. The purpose of an age restriction was to both open up the benefits of the act to more people and ease the Act's financial burden. 

In short, ABLE accounts exist to give people with disabilities an opportunity to save money without negatively impacting their ability to receive benefits from disability programs, which often have a savings limit in place. The ability to save money gives people with disabilities a higher quality of life and a more equitable future. 

Why was the change implemented?

Inflation rates are still high going into 2023. The Federal Reserve’s target for inflation rates is 2-2.5%, but the conservative estimate for current rates is 3.2% by the end of 2023. Given the increase in inflation rates, it was prudent to increase the savings allowance to keep up. The cost of living has also increased, as has gas, healthcare expenses, and most day-to-day costs, while wages remain stagnant. Saving, now more than ever, is crucial. 

This increase in allowable savings also follows a similar increase from last year, the first increase in four years. Last year’s increase took the total allowable savings from $15,000 to $16,000, mirroring this year’s $1,000 increase to $17,000. In addition to inflation, the change in savings amounts could be a continuing trend. 

What does this mean for ABLE account holders?

Essentially, the amount an ABLE account holder can save has increased. While many disability programs have a limit on how much money someone can have at any one time, the money in an ABLE account does not count towards that limit. Therefore, ABLE account holders now have the opportunity for more savings without impacting the benefits they may receive from disability programs. 

This increased limit is good news for ABLE account holders. Saving is an integral part of life, and the more ability people with disabilities have to do it, the more equitable their future becomes. ABLE accounts are not the only solution to combat the poverty gap that exists between people with disabilities and people without disabilities, but it is a huge step toward closing it. Hopefully, the amount that ABLE account holders can save will continue to increase in the future. 

Conclusion

People with ABLE accounts can now save up to $17,000 in their ABLE accounts, thanks to a new rule in 2023. This is an increase of $1,000 from last year and will help people with disabilities save more money for their futures and their daily life. Savings amounts will likely increase again if inflation continues to rise, as it was partly responsible for the change.



 

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