The Achieving a Better Life Experience (ABLE) Act of 2014 was approved by Congress to encourage disabled individuals to save money to pay for their disability-related expenses by using tax-favored savings accounts. The act calls for ABLE programs that are state-run and allow individuals to make contributions into an account for a tax year for the benefit of the qualifying disabled individual. Able funding is intended to supplement, but not replace, benefits disabled individuals may receive through private insurance, Medicaid, and other sources. State ABLE programs are required to limit designated beneficiaries to one account, and they must allow accounts to be opened only for residents of the overseeing state or for residents of a contracting state.
Qualifications
In order to qualify for an ABLE account, an individual must file a disability certification with the IRS or meet IRS criteria for blindness or disability as described in the Social Security Act. A state must limit annual contributions to the amount of the annual gift tax exclusion that is in effect for the respective tax year. Contributions to ABLE accounts must be made in cash. ABLE programs are required to provide separate accounting for each designated beneficiary. Programs must also preclude designated beneficiaries and contributors from having the ability to direct the investment of contributions or earnings in the account.
Tax Incentives
Distributions from ABLE accounts will not be included in the beneficiary’s gross income calculation. In cases in which a designated beneficiary’s distributions do exceed the qualified disability expenses, the amount that would otherwise be included as gross income will be reduced by an amount bearing the same ratio to that amount as the expenses bear to the distributions. Funds that are held in ABLE accounts will not be included for purposes of various federal means-tested programs.
The House of Representatives passed the ABLE Act bill by a vote of 404-17 on December 3, 2014. The bill must be signed by President Obama to become law.
Gary M. Kaplan, CPA is qualified to advice you in understanding the implications of the ABLE Act and how tax-favored savings accounts can help fund care for yourself or your loved one. Taxpayers in Florida, Utah, Maryland, New York, and Washington, D.C. are encouraged to visit gkaplancpa.com or contact Gary Kaplan’s firm at 1 (866) 643-3560.
