ABLE Act Update: A Discussion of the New Proposed Rule
Thursday, July 16th, 2015
It is our hope that most (if not all) families with special needs have become familiar with the recently passed ABLE act, and are aware of the financial benefits that this act may provide for individuals with disability. Here at M&L, we have been following the ABLE Act since its introduction in 2006; and since that time have spent many hours doing everything we can ensure that all families with special needs are aware of the Act and how important it can be to the future of individuals with disability. We stress the importance of this Act for one simple reason: it allows for the creation of the ABLE account, a tax-free savings account that is one of only two legal ways to save to the future without jeopardizing government benefits.
This past June, the US government has taken another step forward with implementing the ABLE Act, an important step towards ensuring that Americans with disability have the same financial freedoms and privileges as other Americans. On June 19th, the IRS published the ABLE Account Rule Proposal – a set of rules clarifying how the ABLE account should operate and defining which expenses would qualify under the Act. Please join us as we take a look at this rule proposal, and discuss the progress being made with implementing this new legislation at a state-level.
ABLE Account Rule Proposal
Since the ABLE Act was signed into law, members of the special needs community have been anxiously awaiting the federal regulations that provide guidance to the states in regards to implementing and monitoring ABLE accounts. Well, last month that wait finally came to an end: on June 19th, the IRS released the ABLE Act Rule Proposal, a document proposing regulations that provide guidance to state programs, designated beneficiaries and other interested parties on a number of issues pertaining to the ABLE accounts. Among other things, the rule proposal outlined the state’s responsibilities with governing the ABLE accounts. These responsibilities include (but aren’t limited to) defining the state’s responsibility to establish and uphold eligibility requirements, ensure that ABLE Accounts are restricted to one per person, and to limit the nature and amounts of contributions.
One of the more notable (and positive) regulations in the proposed rules pertain to the types of expenses considered eligible for the ABLE account, as well as the proposed methods to report account activities. As stated in the proposal, eligible expenses don’t necessarily have to directly related to the individuals disability or be considered medically necessary; as written, “…qualified disability expenses are expenses that relate to the beneficiary’s blindness or disability, and are for the benefit of that designated beneficiary in maintaining or improving his or her health, independence, or quality of life.”
Of course, with the good must come the bad – critics cite that the proposed regulations surrounding the reporting methods for account activity are unreasonable and restrictive; according to an IRS press release, the IRS “will develop two new forms that ABLE account programs will use to report relevant account information annually to designated beneficiaries and the IRS: Form 1099-QA for distributions and Form 5498-QA for contributions.” As reported in disabilityscoop.com, advocates are concerned that the reporting methods as outlined in the proposal are complicated, time consuming, and will place unnecessary financial burdens on the program.
The IRS is inviting comments on the regulations outlined in the proposal for the period of 90 days before publishing the Final Rule. According to the IRS website, comments on the proposed regulations may be submitted on or before September 21, 2015, and a public hearing is scheduled for October 14, 2015. Individuals interested in submitting a comment or participating in the hearing are instructed to visit the Federal Registrar for more information.
The ABLE Act from State to State
As written above, the ABLE Act was signed into law more than six months ago. Despite this, ABLE accounts are not yet available to the public. The delay between the law being passed and the implementation of the ABLE accounts at an individual level is for one simple reason: the ABLE act may be federal law, but the rules that govern them are the responsibility of each individual state. As such, each state must design and put into place state-specific regulations before allowing members of the public to access these accounts.
According to the National Down Syndrome Society’s (NDSS) website, more than half of the states have introduced bills that will allow ABLE accounts to be available for residents as soon as possible. Despite this positive sign, many states are reluctant to take the next step. As the NDSS writes, “some states have expressed hesitancy to enact these programs prior to the issuance of federal guidelines on Section 529A.” In other words, states prefer to wait for the release of the IRS’ Final Rule regarding how the accounts are to be administered before writing state-specific regulation and enacting the ABLE accounts.
In spite of the delay, advocates are hopeful that these accounts will be available in all states as early as next year: “In March of 2015, the U.S. Department of Treasury issued a notice encouraging states to proceed with passing ABLE bills. (See below.) While many states have passed ABLE bills, they have been anxiously awaiting the issuance of these regulations to help answer ambiguities in the federal law before taking significant steps toward designing their ABLE programs. After these regulations are finalized, we expect to see many states expediting ABLE program development and implementation so that ABLE accounts will become available as early as next year.”
If you would like to learn more, please visit the NDSS’ website, www.ndss.org and search ABLE Act. To see the progress that your state is making with enacting the ABLE Act, please click here.
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