After nearly a decade of lobbying from disability advocacy groups, Congress passed the Achieving a Better Life Experience Act in 2014. The law, now known simply as ABLE, allows for the creation of tax-advantaged accounts for people with disabilities, similar to 529 plans for college. The accounts allow eligible individuals to save money without jeopardizing their eligibility for government programs."The advantage of using an ABLE account is that the income will not be used for means testing for (Supplemental Security Income) or Medicaid," says Marc Scudillo, managing officer of financial firm EisnerAmper Wealth Management and Corporate Benefits LLC.Despite their benefits, ABLE accounts still aren't widely used or understood. Fewer than 57,000 accounts have been opened nationwide, according to the National Association of State Treasurers (as of publication).If you or someone you love has a disability, keep reading for answers to all the questions you may have about ABLE accounts. Why should someone open an ABLE account? Who is eligible to open an ABLE account? Which states offer ABLE accounts? Are there tax incentives for using an ABLE account? How much can I contribute to an ABLE account? What expenses are eligible to be paid from an ABLE account? How much does it cost to open an ABLE account? Should I consider a special needs trust instead?Why Should Someone Open an ABLE Account?"Living with a disability can be costly, hence the reasoning behind ABLE accounts," says Matt Schechner, president and founder of financial planning firm Essential Advisory Services in Westbury, New York.People with disabilities may have out-of-pocket medical expenses or additional costs related to transportation, education and housing. At the same time, they may receive income and benefits from government programs such as SSI and Medicaid. These programs typically limit a person's assets to $2,000. Prior to 2014, this put disabled individuals in a position where they could not save for future needs without jeopardizing current benefits."The ABLE account is the way a person can have assets that they control," says Scott Butler, a retirement income planner with Klauenberg Retirement Solutions in Laurel, Maryland. Up to certain limits, money held in an ABLE account isn't counted toward government program asset limits.Who Is Eligible to Open an ABLE Account?An individual must be deemed to be blind or disabled prior to age 26 to be the beneficiary of an ABLE account. Those who are receiving SSI or Social Security Disability benefits are automatically eligible to open an account. Others need to meet Social Security's definition of a disability and receive a physician's letter to that effect in order to qualify, according to The ABLE National Resource Center. Which States Offer ABLE Accounts?Currently, 42 states and the District of Columbia offer ABLE accounts. However, even those who live in a state that doesn't offer ABLE accounts can open one through another state's program. At this time, 26 states allow anyone to open an account while the remainder limit their programs to state residents. Are There Tax Incentives for Using an ABLE Account?Like 529 accounts for college savings, ABLE accounts are administered on the state level, and several offer state tax incentives to residents.For instance, Michigan and Arkansas allow single filers to deduct $5,000 in contributions to an ABLE account on their state tax forms. For joint filers in both states, the maximum deduction is $10,000. Meanwhile, Illinois offers state income tax deductions of $10,000 and $20,000 to single and joint filers, respectively, while Kansas limits its deductions to $3,000 for individuals and $6,000 for couples. Other states, including New York and California, offer no tax incentive for contributions. These deductions are typically only available to residents who are making contributions to their own state's ABLE program. While contributions to another state's account won't garner a deduction, Butler says people should consider whether other plans have lower fees and better investment options. "Sometimes it's better to pick a different plan than to get that tax (deduction)," he says.Regardless of which state you choose, withdrawals from an ABLE account are tax-free so long as the money is used for a qualified expense related to the beneficiary's disability.How Much Can I Contribute to an ABLE Account?An individual can contribute $15,000 to an ABLE account each year. While anyone can make a contribution, be aware that only the first $100,000 of an account's balance is shielded from asset means testing for government programs. "If it's over $100,000, it could affect your SSI benefits," Butler says. What Expenses Are Eligible to Be Paid From an ABLE Account?Money in an ABLE account can be used for a wide range of products and services such as medical treatment, transportation, housing, education and assistive technology. The only requirement is that the expense be related to a person's disability.Withdrawals used for non-qualified expenses may be subject to both regular income tax and a 10% tax penalty. How Much Does It Cost to Open an ABLE Account?Fees vary by state, so it pays to compare costs. For instance, Ohio charges a $30 annual fee for its residents and a $42 annual fee to non-residents. In New York, which doesn't allow enrollments by non-residents, the annual fee is $45 unless paper statements are selected. In that case, the annual fee is $55. There may also be investment fees associated with an ABLE account, and these may depend on which funds you choose for your money. "ABLE accounts have account service fees, which keep ABLE accounts up and running, and an asset management fee, which compensates managers for choosing stocks and managing the portfolio," Schechner says. Investment fees may be taken from an account balance rather than being paid directly by the account owner.Each state's plan offers different investment choices, so make sure to carefully review low-fee investment options to pick a plan that you're comfortable with.Should I Consider a Special Needs Trust Instead?While ABLE accounts have the potential to help millions of Americans with disabilities, some people may still choose to set up a special needs trust, sometimes called a supplemental needs trust. These trusts cost more to set up but offer more flexibility in their use, Scudillo says. Plus, they are typically the only option for those who did not become disabled until after age 26..
taxes
If you’re staring at your 1040 income tax form and feeling lost, you probably aren’t alone. The 1040 tax form was overhauled and revamped in 2018, designed to be shorter and hopefully less confusing. But that doesn’t seem to be the case, according to some tax experts.“Last year, with the 2018 tax filing, we saw the IRS attempt to minimize the tax return to a postcard size," says Abby Eisenkraft, CEO of Choice TaxSolutions Inc., a tax and financial services company in New York City and an IRS enrolled agent."Of course, this ‘postcard’ had to have six additional schedules with it, and both taxpayers and preparers were not huge fans of this new reporting.” This time around, for the 2019 tax filing, Eisenkraft says the tax return is a little longer than it was a year ago – but it now only has three additional schedules.If you’re still feeling overwhelmed, hopefully this guide to the 1040 tax form will help simplify it.What Is IRS Form 1040?A quick definition: Form 1040 is a federal income tax form that most people use to report their tax information to the IRS. On the form is your income, any tax deductions or credits you can claim and the amount of taxes that you will be refunded – or, sigh, the amount of taxes that you owe.What Is the Difference Between 1040EZ, 1040A and 1040?When the Tax Cuts and Jobs Act was signed into law in December 2017, it consolidated the forms 1040, 1040A and 1040EZ into a single and redesigned Form 1040. So unless you’re filing old tax forms, there’s no need to pay 1040A or 1040EZ any mind because they no longer exist. But if you’re curious, they were basically shorter versions of Form 1040.Who Should Fill Out IRS Form 1040?Anyone who files taxes. That said, Shann Chaudhry, a San Antonio business and estate attorney who often advises clients on knotty tax issues, says, “Most taxpayers will only have to file a Form 1040 with no schedules.”He also points out that if you prepare your taxes electronically, you probably won’t notice a difference in this year’s Form 1040.What to Know About the New 1040 SchedulesAs in, how is the 2019 Form 1040 different from the one launched in 2018? Aside from fewer schedules, there are a number of small but significant changes that some taxpayers will want to be aware of:Cryptocurrency. A new question on the tax return asks, “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”Eisenkraft explains the reasoning for the new question this way: “The IRS is looking for taxpayers not properly reporting cryptocurrency activity, and now, under penalties of perjury, taxpayers must check a yes or no box – a big change from prior years. Even if there was no activity and you just held the cryptocurrency, the question must be answered.”Alimony. You'll see changes here too. “Alimony was previously deductible for the payer and included as income for the recipient,” Eisenkraft says.But no more. If you hammered out an alimony agreement after Jan. 1, 2019, the person paying the alimony won’t be able to deduct payments, and the person receiving the alimony won’t be required to claim it as income.A new form for seniors. While the 1040EZ and 1040A are no more, say hello to Form 1040-SR.“It's available for use for those 65 or older, with an increased font size, but those with more complicated tax situations will have to use the regular Form 1040,” Eisenkraft says.Other Types of 1040 FormsThe 1040-SR isn’t the only other type of 1040 form. There are several different types of IRS 1040 forms that some people may need to fill out.Form 1040-NR. If you’re a nonresident alien or the representative of a deceased one, you might need to file this form.Form 1040NR-EZ. This is the same form, only an easier (hence the word EZ, which means “easy”) one to fill out.Form 1040-ES. This form is for people who pay estimated quarterly taxes.Form 1040-V. If you have a balance on the “amount you owe” line of the 1040 or 1040-NR, you might fill this out. It’s a statement that goes along with the taxpayer’s payment.Form 1040-X. Did you make a mistake with a previously filed 1040? Want to amend that error? You can make any changes and include them on your Form 1040-X.Before you sit down to fill out a 1040, you’ll want to make sure you have your W-2 nearby. That will have your earnings information on it. If you’re a freelancer, or you have had part-time gigs throughout the year, you may have a 1099 – or multiple 1099s with earnings information on them.On the 1040, those first seven lines are all income-related questions. You’ll need to provide information such as interest, dividends, pensions, annuities, individual retirement account (IRA) distributions or Social Security benefits.So you’ll want to have handy any paperwork that shows what you’ve earned – if you want to file your taxes as smoothly as possible. If you’re handing off your taxes to a tax preparer, then you’ll want to have all of that information to provide – if you aren’t uploading it onto a tax preparer’s website.In other words, as you’re likely gathering, Form 1040 may be shorter than it used to be, but it arguably takes as long as ever to prepare for..