Background on the ABLE Act
In 2014, the Achieving a Better Life Experience (ABLE) Act was adopted by the IRS. This Act made it possible for states to establish tax-advantaged savings programs for individuals with disabilities. According to Disability Scoop, 42 states and Washington D.C. currently have ABLE programs. Funds deposited into ABLE savings accounts are not tax-deductible, but earnings and distributions to beneficiaries are not taxed.
Requirements to Establish ABLE Accounts
Designated beneficiaries must be residents of the contracting state and have disabilities that onset prior to age 26 to establish an ABLE account, or have an account opened on their behalf by a designated signatory. Those who qualify can use ABLE account funds to pay for disability costs, including housing, healthcare and medical bills, job training, transportation, and assistive technologies, among other qualifying expenses.
Existing Regulations
According to CPA Practice Advisor, the first proposed regulation to the ABLE Act was published in 2015. A second regulation was enacted in 2019 in response to the Tax Cuts and Jobs Act (TCJA.) As a result of these regulations, those eligible for the program can now have more money (up to $100,000) in their ABLE accounts, without risking their ability to receive government benefits. Some contributions made by low to moderate income individuals are eligible for the Saver’s Credit. In addition, funds from 529 (qualified tuition) plans can be rolled into ABLE accounts until the end of 2025.
The Final Regulation
This final regulation fills the gaps in existing guidelines where the ABLE Act is concerned. Most notable, the regulation clarifies rules regarding gift tax exclusion, which is currently capped at $15,000 per year. This means that gifted ABLE account contributions are capped at the same limit. However, if the disabled person is employed and is making their own contributions, this limit does not apply to funds that they deposit into their own account. The summary of the Rule states that it also seeks to “provide corresponding amendments to the unrelated business income tax regulations, the gift and generation-skipping transfer tax regulations.” The regulation also allows for co-signatories of an ABLE account opened on behalf of a disabled individual
In addition, the regulation expands on record-keeping and reporting requirements of ABLE programs. It also responds to comments received on the 2015 and 2019 regulations and explains in detail what changes were made in response to these comments. To read the full guidelines, please visit the Federal Registrar’s website to read the full IRS Rule “Guidance Under Section 529A: Qualified ABLE Programs.”
