In a recent press release, the Internal Revenue Service announced the release of proposed regulations implementing a new federal law authorizing states to offer tax-favored ABLE accounts to people with disabilities who became disabled before age 26.
The Achieving a Better Life Experience (ABLE) legislation was signed into law in December 2014. ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses.
Contributions can be made to an ABLE account on an annual basis in a total amount up to the annual gift tax exclusion amount, currently $14,000. Distributions from an ABLE account are tax-free if used to pay qualified disability expenses.
“Qualified disability expenses” 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 beneficiary’s eligibility for many federal means-tested programs, such as Supplemental Security Income (SSI), or in determining the amount of any benefit provided under those programs.
Commentators indicate that the proposed regulations provide guidance to state program administrators, beneficiaries and others on a number of issues. For example, the proposed regulations explain the responsibilities program administrators have in ensuring an individual’s eligibility for an ABLE account. The proposed ABLE regulations also require that ABLE program administrators determine on an annual basis if the account owner’s status has changed, and to track the use of account withdrawals.
The proposed regulations provide as follows:
- Opening an ABLE Account: The proposed regulations state that “[a] qualified ABLE program must specify the documentation that an individual must provide, both at the time an ABLE account is established for that individual and thereafter, in order to ensure that the designated beneficiary of the ABLE account is, and continues to be, an eligible individual.”
- Annual recertification: The proposed regulations require that programs specify the documentation that must be provided after an account is opened to establish the account owner’s continued disabled status. According to the proposed regulations, “a qualified ABLE program may choose different methods of ensuring a designated beneficiary’s status as an eligible individual and may impose different periodic recertification requirements for different types of impairments.”
- Tracking distributions. Perhaps the most difficult regulation to implement mandates that “[a] qualified ABLE program must establish safeguards to distinguish between distributions used for the payment of qualified disability expenses and other distributions, and to permit the identification of the amounts distributed for housing expenses as that term is defined for purposes of the Supplemental Security Income program of the Social Security Administration.”
The new regulations indicate that, taxpayers and qualified ABLE programs may rely on the proposed regulations until final regulations are issued.
The new regulations are attached here – IRS ABLE Act Regulations
Interestingly, Don Stenberg, the Treasurer of the State of Nebraska recently published his reaction to the new IRS regulations for ABLE accounts via a press release. Mr. Steinberg was highly critical of the IRS ABLE regulations and described them as a “slap in the face of persons with disabilities.” State Treasurer Steinberg criticized the new federal regulations for ABLE accounts as follows:
As I read the proposed regulations, every time individuals with disabilities want to spend even a single dollar of their money, from their own ABLE accounts, they have to file paperwork with the state demonstrating that each is a ‘qualified disability expense.
This is a slap in the face of Americans with disabilities, is an unreasonable and unnecessary burden on them, and will create administrative burdens that will increase the costs qualified individuals will need to pay to use the program.
There is no requirement in the college savings program that the account owner submit proof to the state that withdrawals are for qualified expenses. I do not understand why the U.S. Treasury Department wants to mistreat citizens with disabilities by imposing requirements on them that the department does not impose on any college students and their parents. Frankly, I think that it is shameful.
The kind of program I would like to have here in Nebraska would allow qualified individuals to write checks or use debit cards to pay qualified disability-related expenses from their ABLE accounts. It is, after all, their own money. Under these proposed federal regulations, we would not be allowed to operate in that way.
The regulations also require the state to make a determination of whether a person with a disability is an ‘eligible individual.’ The Congress of the United States, at the urging of the College Savings Plan Network, an affiliate of the National Association of State Treasurers, by law, made this the responsibility of the Secretary of the Treasury of the United States, not the responsibility of the state ABLE program. This regulation, which is contrary to law, adds substantial additional administrative costs to the state program, which will be paid by Nebraskans with disabilities.
I am very concerned that these proposed federal regulations could result in smaller-population states like Nebraska being unable to employ a program manager on terms that Nebraskans with disabilities would be able to afford.
I strongly urge advocates of people with disabilities here in Nebraska and across the nation to submit comments to the U.S. Treasury Department objecting to these regulations and to send copies to their U.S. Senators and members of the House of Representatives.
The ABLE bill passed Congress with large bi-partisan margins in both houses. I hope that members of Congress will let the Treasury Department know that these regulations violate their legislative intent and are unacceptable.
Prior blog posts about the new ABLE accounts are accessible here – (1) Congress Passes the ABLE Act, Permitting the Disabled to Own Savings Accounts while Preserving Eligibility for Public Benefits; (2) Congress Proposes Tax-Deferred Savings Accounts, called “ABLE” accounts, for People with Special Needs; (3) Understanding ABLE: Achieving A Better Life Experience Act Explained
For additional information concerning special needs trusts and disability planning, visit:
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