New ABLE programs provide significant tax-saving opportunity for people with disabilities.

• Author: Borkes, Jason
• Position: Achieving a Better Life Experience Act of 2014

On June 19, 2015, the IRS issued proposed regulations (REG-102837-15) that provide authority on new qualified Achieving a Better Life Experience (ABLE) programs for eligible taxpayers who meet the disability requirements for these accounts. The proposed regulations may be relied on until final regulations are issued. ABLE programs will be available for tax years beginning after Dec. 31, 2014, and will be established and maintained on a state-by-state basis. The legislation creating ABLE accounts was passed as part of the Tax Increase Prevention Act of 2014, P.L. 113-295. These programs open up additional tax saving opportunities for qualified taxpayers.

Background

While ABLE programs are new, the concepts behind them are not. An ABLE program allows a taxpayer to contribute cash to an account, invest the money in a way the taxpayer chooses, and take tax-free distributions from the account to use toward qualified disability expenses.

The regulations strictly limit the taxpayer's ability to change the investment of contributions to the program. According to Sec. 529A(b)(4), a program will not be treated as a qualified ABLE program unless it provides that any designated beneficiary under the program may direct the investment of any contributions to the program (or any earnings) no more than two times in any calendar year. Many other rules in the proposed regulations provide guidance on requirements to be eligible for an ABLE account, qualified disability expenses, limits on contributions and distributions, as well as other issues. In considering tax planning opportunities and strategies, it is important to understand all these details.

Eligible Individuals

To be eligible for an ABLE account, a qualified individual must be deemed disabled before the age of 26. Sec. 529A(e)(1) Lists two ways to satisfy the disability requirement: (1) The individual is entitled to benefits based on blindness or disability under Title II or XVI of the Social Security Act, or (2) the individual files a disability certification with the IRS for the tax year. The disability certification must state the individual has a medically determinable physical or mental impairment that results in marked and severe functional limitations and that can be expected to result in death or have lasted for a continuous period of not less than 12 months, or is blind, determined before the age of 26. Outside of the disability requirements, an eligible individual can have only one ABLE...