Hunt & Associates P.C.

Almost ABLE: An Update on Savings Accounts for People with Disabilities

This past January, we told you here about recently enacted federal legislation, the Achieving a Better Life Experience Act of 2014 (the “ABLE Act”), which allows persons with disabilities to establish tax favored savings accounts which can be used to pay for expenses related to their disabilities.

Persons who became severely disabled prior to their 26th birthday may establish an ABLE account, to which anyone can make a contribution. The total annual amount of contributions is limited to the gift tax exclusion amount (currently $14,000.00). Funds in the account (1) can be used to pay “qualified disability expenses” (see below), and (2) will not jeopardize the disabled individual’s eligibility for means tested programs, such as SSI or Medicaid. Distributions for qualified disability expenses will not be considered income to the disabled person.

Although the ABLE Act was signed into law by President Obama more than six months ago, further action is still required by both the federal and state governments before ABLE accounts will be a reality. Following is a brief update on what has happened since the law’s enactment.

Proposed federal regulations issued: The Internal Revenue Service (IRS) recently issued its proposed regulations which, when adopted, will provide the basic guidelines for how participating states are to implement this new law. A public hearing on the proposed regulations is scheduled for mid-October.

Among the more noteworthy of the proposed regulations is the definition of “qualified disability expense”. The proposed regulations interpret this term broadly, to include “expenses which relate to the disability” and benefit the account owner by “maintaining or improving his or her health, independence or quality of life”. The proposed regulations also prescribe annual reporting requirements that ABLE account owners will be required to file with the IRS.

State action: Individual states are not required to establish ABLE accounts; in effect, each state must decide on its own if it intends to allow its citizens to maintain such accounts. Once a state decides to participate, it will need to comply with the applicable federal regulations.

Oregon is probably “in”: One of the last acts taken by the Oregon’s legislature before it adjourned in early July was to pass Senate Bill 777, which authorizes the state to participate in the ABLE program. The bill has been sent to the governor for her signature, which is expected. Once the bill is signed by the governor, the Oregon treasurer and the Oregon 529 Savings Board (the folks who administer the college savings plan) will have the job of establishing a qualified ABLE program “not later than January 1, 2017.”

So is Washington: The Washington legislature passed House Bill 2063 in April, and it was signed by the governor in early May. The next step is for the state treasurer’s office to convene a working group and “provide a detailed implementation plan by November 1, 2015”.

So, both Oregon and Washington are moving in the direction of establishing the state mechanism for ABLE accounts, although individual accounts in either state are still several months in the future.

© 7/16/2015 Charles A. Ford of Hunt & Associates, P.C.  All rights reserved.


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