Last December Congress passed a law authorizing states to offer special tax and public benefit favored ABLE accounts to people with disabilities who became disabled before age 26.
The Achieving a Better Life Experience Act of 2014 (ABLE Act) is designed to enable a limited class of people with disabilities to save for and pay for disability-related expenses without paying income tax or jeopardizing their public benefit (SSI and Medicaid) eligibility.
Earnings on an ABLE account will not be subject to federal income tax, and more importantly, the funds in the account will not disqualify the owner from continued benefits under the Supplemental Security Income (SSI) and Medicaid programs. If program rules are followed, money can be saved for a qualified beneficiary’s future expenses and needs without jeopardizing the owner’s SSI and Medicaid eligibility.
ABLE accounts are only available to residents of a state which has either established its own qualified ABLE program or entered into a contract with another state to provide its residents with access to a qualified ABLE program.
Moving quickly, the Internal Revenue Service has now released proposed regulations implementing the new law. The regulations give guidance to states that want to establish ABLE programs and to individuals who wish to establish ABLE accounts in those states.
Pennsylvania is likely to enact legislation authorizing the establishment of ABLE accounts by qualified residents of the Commonwealth. House Bill 1319 has already passed the House and will now be reviewed in the State Senate.
The IRS regulations are currently "proposed." Before they are adopted as final regulations, consideration will be given to any comments that are timely submitted to the IRS. Comments must be received by September 21, 2015.
The proposed regulations have already been subject to criticism and I anticipate that there will be some changes made in the final regulations. However, taxpayers and state programs can rely on the proposed regulations until final regulations are eventually adopted.
Here are links to additional information:
ABLE Accounts - a New but Limited Financial Option for the Disabled, Marshall Elder and Estate Planning Blog, December 22, 2014.
IRS’s Proposed Section 529A Regulations for ABLE Programs: A Mixed BagLeonard Weiser-Varon, National Law Review, June 19, 2015.
Proposed Regulations Offer Guidelines for New State-Sponsored ABLE Accounts for People with Disabilities, IR-2015-91, June 19, 2015.
Pennsylvania House Bill 1319, Regular Session 2015-2016.