The Obama Administration released proposed regulations June 22 to implement the Achieving a Better Life Experience (ABLE Act), paving the way for people with disabilities to save for disability-related expenses without jeopardizing eligibility for public benefits.
Under the ABLE Act, passed overwhelmingly by Congress in December, people with disabilities can contribute up to $14,000 per year in “qualifying disability expenses,” up to maximum of $100,000, into a special savings account. These funds will not be calculated when determining eligibility for Medicaid, Supplemental Security Income, and most other means-tested benefits programs.
The ABLE Act provides a non-exhaustive list of “qualifying disability expenses,” including costs for education, housing, transportation and employment training support. The proposal makes clear that this mandate will be interpreted broadly.
“The Treasury Department and the IRS conclude that the term ‘qualifying disability expenses’ should be broadly construed to permit the inclusion of basic living expenses and should not be limited to expenses for items for which there is a medical necessity or which provide no benefits to others in addition to the benefit to the eligible individual,” the rule states.
However, this broad criteria comes with extensive reporting requirements, significantly more stringent than those for Section 529 College Savings Plans, which the accounts are modeled after. ABLE account holders will be required to submit monthly reports to the Social Security Administration, listing relevant distributions and balances on their account.
Contributions to ABLE accounts will be, with certain exceptions, tax free. However, upon the death of the beneficiary, the funds in the account will be included in the person’s estate for estate tax purposes.
To determine eligibility to set up ABLE accounts, the IRS will rely on the definition of disability used by the SSA for children claiming Supplemental Security Income eligibility, but without regard to age.
Although people with disabilities may establish ABLE accounts, the regulations clarify that accounts can be set up by an agent appointed by the individual, such as an individual under a power of attorney, or a parent or legal guardian. Contributions to the account can be made by any person, which includes corporations and other business entities.
Although the federal government will retain oversight, ABLE accounts will be regulated primarily at the state level. The law requires that each state pass legislation, designating an agency to oversee ABLE Accounts for its residents. Since March, 22 states have done so.
The public has until September 21 to submit comments in response to the proposal.
Further information about ABLE accounts can be seen in a webinar produced by the ARC, called “Understanding Able.”