IRS Issues Final Regulations For Achieving A Better Life Experience (ABLE) Accounts

The Internal Revenue Service issued final regulations this month providing details about how Achieving a Better Life Experience (ABLE) accounts should operate.

ABLE accounts are designed to help people with disabilities and their families save up to $100,000 without risking eligibility for Supplemental Security Income (SSI) and other government benefits based on financial need. Medicaid can be retained no matter how much money is saved in ABLE accounts. Distributions are tax-free to the designated beneficiary if used to pay qualified disability expenses. These qualified disability can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other disability-related expenses. ABLE accounts are open to people with disabilities that onset prior to age 26. (Numerous articles have been posted on this blog about ABLE accounts.)

The final regulations finalize two previously issued proposed regulations. The first proposed regulation was published in 2015 after the enactment of the ABLE Act. The second proposed regulation was published in 2019 in response to the Tax Cuts and Jobs Act, which made significant changes to ABLE accounts.

Annual deposits to ABLE accounts are capped at the value of the gift tax exclusion for any given year, currently $15,000 annually.

The final regulations set forth a hierarchy of those who may establish an ABLE account for an disabled individual. Specifically, the order of priority is as follows: an individual chosen by the eligible individual, the eligible individual’s attorney-in-fact under a power of attorney, a conservator, a legal guardian, a spouse, a parent, a sibling, a grandparent or a representative payee appointed by the Social Security Administration. Under the final regulations, an ABLE account program may accept a statement signed by an individual certifying that he or she is authorized to establish the account and that there is no other person with a higher priority willing to create the account.

Also, under the final rules, employed beneficiaries of ABLE accounts can deposit their earnings in ABLE accounts, above and beyond the existing contribution cap for the year. The additional earnings deposit permitted by employed ABLE account beneficiaries is limited to either the lesser of the employee’s paid salary for the year or an amount equal to the poverty guideline for a one-person household in the state where they live (currently, $12,760 in New Jersey.)

Funds from a designated beneficiary’s 529 plan can be rolled over to an ABLE account for the same beneficiary. The final regulations provide that rollovers from 529 plans, together with any contributions made to the designated beneficiary’s ABLE account (other than permitted contributions of the designated beneficiary’s compensation) cannot exceed the annual ABLE contribution limit. The rules indicate that this option is available until Jan. 1, 2026.

Also, certain contributions made to ABLE accounts by low- and moderate-income workers may now qualify for the Saver’s Credit, which can reduce their federal tax bill.

Finally, the final regulations provide guidance on the record-keeping and reporting requirements of a qualified ABLE program.

Currently, 42 states, including New Jersey, have active ABLE programs, many of which are open to people with disabilities nationwide, according to the ABLE National Resource Center.

The final regulations are attached here – [gview file=””]

For additional information concerning special needs trusts and disability planning, visit:

NJ Special Needs Trusts and Disability Planning