IRS Issues Guidelines for State-Sponsored “ABLE” Accounts for People with Disabilities

From IRS News: Issue IR-2015-91

The Internal Revenue Service released proposed regulations implementing a new federal law authorizing states to offer specially-designed tax-favored ABLE accounts to people with disabilities who became disabled before age 26.

The Achieving a Better Life Experience (ABLE) account provision was signed into law in December 2014. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses.

The new law authorizes any state to offer its residents the option of setting up an ABLE account. Alternatively, a state may contract with another state that offers such accounts. The account owner and designated beneficiary of the account is the disabled individual. In general, a designated beneficiary can have only one ABLE account at a time, and must have been disabled before his or her 26th birthday. The law provides what it means to be disabled for this purpose.

Contributions in a total amount up to the annual gift tax exclusion amount, currently $14,000, can be made to an ABLE account on an annual basis, and distributions are tax-free if used to pay qualified disability expenses. [Contributions are limited, however. Please visit the IRS website for more details.]

These are expenses that relate to the designated beneficiary’s blindness or disability and help that person maintain or improve health, independence and quality of life. For example, they can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other expenses.

In general, an ABLE account is not to be counted in determining the designated beneficiary’s eligibility for many federal means-tested programs, or in determining the amount of any benefit or assistance provided under those programs, although special rules and limits apply for Supplemental Security Income (SSI) purposes.

The proposed regulations, available today for public inspection at www.federalregister.gov, provide guidance to state programs, designated beneficiaries and other interested parties on a number of issues. Until the issuance of final regulations, taxpayers and qualified ABLE programs may rely on these proposed regulations.

More information can be found at Tax Benefit for Disability: IRC Section 529A on the IRS website.


 

MORE “ABLE” TIPS:

These new rules fall under Section 529 of the IRS Code, which is the same section as the 529 Education Savings Accounts.

For that reason, ABLE Accounts appear to be similar in many respects to the education savings accounts allowing for post-tax contributions and tax-free withdrawals.

 

Posted in 2015 Mid Year Newsletter

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