New tax-favored savings accounts for the disabled - "ABLE"

[jklcpa]

Passed on Tuesday and awaiting the President's signature -

 

http://journalofaccountancy.com/news/2014/dec/tax-favored-savings-accounts-for-disability-expenses-201411491.html


New law creates tax-favored savings accounts for disabled taxpayers

By Alistair M. Nevius, J.D.
December 17, 2014

As part of the larger tax extender legislation passed on Tuesday, Congress approved the Achieving a Better Life Experience (ABLE) Act of 2014 (H.R. 647), which will allow disabled individuals to save money to pay for their disability expenses in tax-favored accounts, called ABLE accounts. The House of Representatives passed the measure on Dec. 3, by a vote of 404–17, and it now goes to President Barack Obama for his signature.

The purpose of the bill is “[t]o encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life” and “[t]o provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance,” Medicaid, and other sources (H.R. 647, §101).

The bill adds a new Sec. 529A to the Code, under which a qualified ABLE program will be exempt from taxation (except for unrelated business income tax). A qualified ABLE program is a program run by a state that allows a person to make contributions for a tax year, for the benefit of an eligible individual, to an ABLE account established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account. A state’s ABLE program must limit designated beneficiaries to one account and must allow accounts to be opened only for residents of that state or a contracting state.

Eligible individuals must file a disability certification with the IRS or meet certain criteria for blindness or disability under the Social Security Act (42 U.S.C. §1382).

Contributions must be made in cash, and the program must limit annual contributions to the amount of the annual gift tax exclusion in effect for that tax year.

The ABLE program must provide separate accounting for each designated beneficiary, and designated beneficiaries and contributors must not be able to direct the investment of contributions or earnings in the account.

Distributions from the account will not be included in the designated beneficiary’s gross income as long as they do not exceed the beneficiary’s qualified disability expenses. If they do exceed the beneficiary’s qualified disability expenses, the amount otherwise includible in gross income will be reduced by an amount bearing the same ratio to that amount as the expenses bear to the distributions.

Funds in ABLE accounts will also be disregarded for purposes of various federal means-tested programs.

Once signed by the president, the bill will take effect for tax years beginning after Dec. 31, 2014.

— Alistair M. Nevius ( [email protected] ) is the JofA’s editor-in-chief, tax.

[BulldogTom]

Are the contributions deductible by the contributor?

 

Tom

Newark, CA

[jklcpa]

Are the contributions deductible by the contributor?

 

Tom

Newark, CA

 

No, not that I can see. They are supposed to work like a 529 plan.

 

From one of the Congressman's sites that voted for it:

 

WASHINGTON, D.C. – On Wednesday, U.S. Rep. Glenn ‘GT’ Thompson voted to support “The Achieving a Better Life Experience (ABLE) Act” (H.R. 647/S.313), which passed the House with bipartisan support by a vote of 404-17.

“The Achieving a Better Life Experience Act eases the enormous financial burden placed upon individuals with disabilities and their families by making it easier for them to plan and save for the future. As a cosponsor of the ABLE Act, I am proud of this bipartisan effort to empower individuals to live with greater dignity and independence. It is my hope the Senate will act swiftly to pass this important legislation,” said Thompson.

Under current law, individuals with disabilities face significant barriers to finding and holding employment and living independently because their access to certain safety-net programs can be lost once they establish a minimum level of savings and income.

The ABLE Act aims to provide families of a severely disabled child with some peace of mind by allowing them to save for their child’s long-term disability expenses in the same way that families of able bodied children can currently save for college through popular 529 investment plans.

The ABLE Act empowers disabled individuals and their families to save their own money in a 529A (or ABLE) account to maintain health and independence with a goal of allowing those individuals to transition away from government assistance and benefits.

ABLE Accounts would be a savings vehicle for disability-related expenses that will supplement, but not supplant, benefits provided through private insurances, the Medicaid program, the supplemental security income program, the beneficiary’s employment, and other sources.

529A accounts would be administered on a voluntary basis by the States in a similar manner as 529 college savings accounts.

The ABLE Act has 381 House sponsors and 74 Senate sponsors.

[jklcpa]

Safe link to Library of Congress for the text of the bill:

 

http://thomas.loc.gov/cgi-bin/query/F?c113:3:./temp/~c113pWwBY6:e2637: