IRS issues Proposed Regs for ABLE Accounts

The IRS has issued proposed regulations implementing Sec. 529A, which authorizes states to offer specially designed tax-favored accounts for the disabled (ABLE accounts). Sec. 529A was added by the Achieving a Better Life Experience (ABLE) Act of 2014, which was part of the Tax Increase Prevention Act of 2014.

ABLE accounts were created in recognition of “the special financial burdens borne by families raising children with disabilities and the fact that increased financial needs generally continue throughout the disabled person’s lifetime” (preamble, p. 5). Contributions made to an individual’s ABLE account can be used to meet the individual’s qualified disability expenses.

One account is permitted to be set up per eligible individual and total annual contributions are restricted to the amount excluded under Sec. 2503(b) for gift tax purposes ($14,000 for 2015, but inflation adjusted). Amounts contributed in excess of those limitations must be returned to the contributors on a last-in, first-out basis by the due date of the beneficiary’s tax return (including extensions) for the year in which the contributions were made and are subject to a 6% excise tax if they are not returned.

Sec. 529A allows a state (or agency or instrumentality) to create a qualified ABLE program under which a separate ABLE account may be established for a disabled individual who is the designated beneficiary and owner of that account. Contributions to that account are subject to both an annual and a cumulative limit, and, when made by a person other than the designated beneficiary, are treated as nontaxable gifts to the designated beneficiary.

Distributions made from an ABLE account for qualified disability expenses of the designated beneficiary are not included in the designated beneficiary’s gross income, but the earnings portion of distributions from the account in excess of the qualified disability expenses is includible in the designated beneficiary’s gross income. An ABLE account may be used for the long-term or short-term needs of the beneficiary. One of the most important provisions of these accounts is that they are generally not counted when determining the disabled person’s qualification for needs-based federal programs.

To qualify, the program must be established and maintained by a state or a state’s agency or instrumentality; permit the establishment of an ABLE account only for a designated beneficiary who is a resident of that state, or of a state contracting with that state; permit an ABLE account to be established only for a designated beneficiary who is an eligible individual; limit a designated beneficiary to only one ABLE account, wherever located; permit contributions to an ABLE account established to meet the qualified disability expenses of the account’s designated beneficiary; limit the nature and amount of contributions that can be made to an ABLE account; require a separate accounting of each designated beneficiary’s account; limit the designated beneficiary to no more than two opportunities in any calendar year to provide investment direction; and prohibit pledging an interest in an ABLE account as security for a loan.

Because eligible individuals often will not be able to set up their own accounts, the rules allow a person with power of attorney or the beneficiary’s parent or guardian to set up the account. Each account must be for an eligible individual, which means the individual is entitled to benefits based on blindness or disability under title II or XVI of the Social Security Act and the blindness or disability occurred before the date on which the individual turned 26, or the individual obtains a disability certification meeting requirements specified in the regulations.

To ease the administrative burdens and in recognition that some people may move in or out of disabled status, in years in which an eligible individual is no longer eligible, the plan cannot accept additional contributions and will not be deemed to make a distribution, but the account can remain open. The rules also are flexible in the requirements for annual recertifications of disability.

For more, go here.

A Holiday Gift from an ABLE Congress!

Sara Wolff (center) calling on Congress to allow disabled
 Americans to save and still receive benefits like
 Social Security Disability Insurance payments and Medicaid

The following is a reprint from the blog of Michael Morris, the Executive Director of the National Disability Institute (NDI) in Washington:

Last night, the U.S. Senate overwhelmingly passed (76-16) the Achieving Better Life Experience (ABLE) Act. The bill now goes to President Obama for signing into law. Not since the passage of the Americans with Disabilities Act (ADA) in 1990 has Congress moved forward with a change in public policy as important and unprecedented as ABLE. The ABLE Act represents the first time there is clear recognition and sensitivity to the extra costs of living with a disability for children and adults with significant disabilities and their families. Every day, all across America, parents raising a child with a disability are confronted with costs not covered by insurance and various public assistance or benefits. The costs are as varied as modifying a home to be more accessible to using adaptive equipment and assistive technology that enhances learning, mobility, hearing and the ability to use a computer, all which improve quality of life experience. 

For adults with significant disabilities, extra costs can also include additional hours of personal assistance support to get out of bed, help with cooking and other daily living needs, as well as accessible transportation, housing and employment supports. 

The ABLE Act responds to these significant daily and weekly out-of-pocket expenses by creating, for the first time, a tax-advantaged savings account (an ABLE account). This account would cover the extra costs of living with a significant disability without adversely affecting continued eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid (health care). 

No piece of legislation before this Congress had more cosponsors – 380 House Members and 74 Senators – or received more bipartisan support across both the Democratic and Republican parties. ABLE is, above all, about fairness. Families raising children with significant disabilities do not want a handout and public assistance that comes with a life sentence in poverty. The disability community wants a hand up so they can be included in the economic mainstream as productive and valued members of inclusive workplaces and communities. ABLE offers, for some individuals and families (eligibility is limited to age of onset of disability by 26 years of age), an opportunity to plan for the future by setting aside up to $100,000 for expenses that may accrue over a lifetime, without the interest being taxed when the funds are removed. For some five million plus individuals and families who are likely to establish an ABLE account in the future, it is truly an early holiday present.

Thank you to Congress for passing the ABLE Act and improving the financial security of millions of Americans with significant disabilities and their families.

The National Disability Institute is a national not for profit corporation that is dedicated to "changing thinking and behavior that advance the financial stability and economic strength of persons with disabilities across the country.  Leveraging public and private resources, NDI is uniquely and singularly focused on promoting REAL ECONOMIC IMPACT for persons across the full spectrum of disabilities."  NDI's Real Economic Impact Blog is just one part of that mission.

Let us all join in the growing chorus of voices thanking Congress for this holiday gift.  You can read more about the ABLE Act here.  This blog will later carry a final description of the law as signed by the President.

Achieving a Better Life Experience (ABLE) Act Would Create Tax-free Accounts for the Disabled

Sara Wolff (center) is calling on Congress to allow disabled
 Americans to save and still receive benefits like
 Social Security Disability Insurance payments and Medicaid.

Many families struggle with planning for the future of a child with severe disabilities. While they are able to save for the educational needs of their other children through “529” college tuition plans, these plans do not fit well the needs of a child with severe disabilities.  The disabled child may, now, or in adulthood, need the long term services and supports of the Medicaid program and/or the income assistance of the Supplemental Security Income (SSI) program.  Since the child may live for many decades beyond the ability of the parents to supplement the services they receive through Medicaid, most parents recognize the need for saving and securing funds for the child.  Others want to ensure the financial security of a disabled child who has a level of disability required for Medicaid eligibility, but for now, is managing to function without the use of those benefits. Still others want to ensure that their family member can exercise control over the funds in the account without endangering the Medicaid and SSI benefits on which they may rely.

Although Supplemental Needs Trusts and/or Wholly Discretionary Trusts for Special Needs offer a savings solution, many families have found it too expensive to establish a trust which meets the requirements of the Medicaid and SSI programs.  While many attorneys will prepare these for reduced fees for those in need, it is not uncommon to pay five to ten thousand dollars for these solutions.  The ABLE Act (S.313 / H.R.647) would give individuals with disabilities and their families access to accounts that would allow individual choice and control while protecting eligibility for Medicaid, SSI, and other important federal benefits for people with disabilities.

The Senate Finance subcommittee on taxation and IRS oversight may have never heard testimony from someone quite like Sara Wolff.  Ms. Wolff, 31, was born with Down syndrome, but that hasn’t stopped her from becoming involved in politics. She testified before the subcommittee on the Achieving a Better Life Experience (ABLE) Act, which would create tax-free savings accounts for those with disabilities. Earlier this year, she wrote a change.org petition calling on Congress to pass the ABLE Act. The petition garnered more than 250,000 online signatures.

“Just because I have Down syndrome, that shouldn’t hold me back from achieving my full potential in life,” Ms. Wolff of Moscow, Pa., said in a statement. “I can work a full-time job, be a productive member of society, and pay taxes – but because of outdated laws placed on individuals with disabilities, we hold people like me back in life.”

Ms Wolf is also a board member of the National Down Syndrome Society (NDSS), which is championing the bipartisan legislation. The Senate bill is sponsored by Sen. Robert Casey, Pennsylvania Democrat, and Sen. Richard Burr, North Carolina Republican.  Support for the House bill is being led by Rep. Ander Crenshaw, Florida Republican; Rep. Cathy McMorris Rodgers, Washington Republican; Rep. Pete Sessions, Texas Republican; and Rep. Chris Van Hollen, Maryland Democrat.

“The bill aims to ease financial strains faced by individuals with disabilities by making tax-free savings accounts available to cover qualified expenses such as education, housing and transportation,” said an NDSS statement.

Ms. McMorris Rodgers, whose seven-year-old son Cole has Down syndrome, called on Congress to “advance this crucial legislation.”  “As the mom of a son with Down syndrome, I see firsthand how federal policies limit—not expand— opportunities for those with disabilities.  And the ABLE Act will change that,” said Ms. McMorris Rodgers in a statement. “It will make sure that Cole — and the millions like him who have special needs — will be able to save for their futures and reach their full potential.”

The ABLE Act  has 74 Senate co-sponsors, including Senate Majority Leader Harry Reid and GOP Minority Leader Mitch McConnell.  “Passing this landmark legislation will go a long way to help people with Down syndrome and other disabilities realize and achieve their own hopes, dreams and aspirations,” NDSS Vice President of Advocacy and Affiliate Relations Sara Hart Weir said in a statement.

Members of the U.S. Senate said Friday, September 26th, that they have an agreement that will allow the Achieving a Better Life Experience, or ABLE, Act to proceed to the full Congress.  The bill’s chief sponsors and leaders of the Senate’s Committee on Finance said in a joint statement that they expect the legislation to be considered when Congress returns to Washington in November.

Under the measure, people with disabilities would be able to create special accounts at any financial institution where they could deposit up to $14,000 annually. The ABLE accounts could accrue up to $100,000 in savings without risking an individual’s eligibility for government benefits like Social Security. What’s more, Medicaid coverage could be retained no matter how much money is deposited in the proposed accounts.

Modeled after the popular 529 college savings plans, funds deposited in ABLE accounts could be used to pay for education, health care, transportation, housing and other expenses. Interest earned on savings within the accounts would be tax-free.

The ABLE Act has been under consideration in Congress since 2006.  It is time that this proposal was enacted into law.

If you want to follow this legislation, Autism Speaks will do that for you by clicking here.  

The National Disability Institute has useful information here.

You can sign Sara's petition here.

Read more: http://www.washingtontimes.com/news/2014/jul/22/act-would-create-tax-free-savings-accounts-disable/#ixzz38RqDdzBf

and http://www.disabilityscoop.com/2014/09/19/deal-savings-accounts/19689/