The IRS has proposed regulations on Able Act accounts. In December of 2014, the Acheiving a Better Life Experience (ABLE) account provisions were signed into law. These accounts were designed to help disabled people and their families to save for disability expenses. Nondeductible contributions can be made to ABLE accounts and distributions are not taxable if used for qualified expenses. This allows for investment gains
The regulations provide guidance on account requirements to qualify as an ABLE account. These accounts must be established and maintained by a state or state’s agency and that the beneficiary is a resident of that state. A beneficiary is limited to only one account. The account cannot be pledged as a security for a loan and a beneficiary cannot provide investment direction no more than 2 times a year. If the beneficiary ceases to be a qualified individual, additional contributions to the account cannot be made.
Contributions to the account generally must be made in cash and are limited to the annual per-donee gift tax exclusion under Code Sec. 2503(b) that is in effect for the calender year ($14,000 in 2015). Contributions are not deductible and are treated as completed gifts. Contributions over the annual calendar limit are subject to excise taxes until corrected.
Distributions from the accounts are not taxable if used to pay for qualified expenses. Qualified expenses include, but are not limited to, education, housing, transportation, employment training, assistive technology, health, prevention and wellness, financial management, legal fees, oversight, funeral, and other expenses that may be identified in future guidance. The Treasury Department requests comments of what type of expenses may qualify.
A qualified ABLE program must report the establishment of the account with relevant information on Form 5498-QA to the account owner. Information regarding distributions will be reported on Form 1099-QA annually to beneficiaries.