Ordinarily, yearly contributions to ABLE accounts are capped at the annual gift tax exclusion ($15,000 in 2018). The Tax Cuts and Jobs Act temporarily increased the contribution limit. For 2018 through 2025, an additional contribution is permitted up to the lesser of:
- The beneficiary’s compensation for the year
- An amount equal to the poverty line for a one-person household for the calendar year preceding the contribution year.
The designated beneficiary, or a person acting on behalf of this beneficiary is required to maintain adequate records regarding the beneficiary’s compensation and his or her household income.
The IRS has indicated that it intends to issue proposed regulations allowing a person to certify under penalty of perjury that he or she is a designated beneficiary (Notice 2018-62). A designated beneficiary cannot use the additional contribution limit if he or she is covered by a qualified retirement plan (including an employee annuity or state/local deferred compensation plan).
Proposed regulations will also clarify that excess contributions must be returned to the contributor. Because state law may need to be amended to reflect this, likely transitional relief will be provided.