IRS Eases Administrative Oversight of ABLE Accounts

As discussed in earlier blog posts, the Achieving a Better Life Experience (ABLE) Act was signed into law in December 2014.  Under the ABLE Act, a so-called ABLE account can be established for a disabled individual.  The mechanics are very similar to 529 college savings plans.  As opposed to saving for college, the ABLE account allows a disabled individual to save for disability-related costs without the account being considered a “benefit” for means-based testing government programs, such as Medicaid.  Although the federal government enacted the legislation in December 2014, each State is responsible for adopting its own ABLE account law.  In New York, the legislation is awaiting Governor Cuomo’s signature.  In New Jersey,  the legislature is still working on the enabling legislation.

In June 2015, the IRS released proposed regulations describing administrative requirements that would have to be satisfied.  Under the regulations, safeguards were to be established to categorize qualified disability distributions, including identifying amounts to be distributed for housing expenses.  In addition, the institution maintaining the ABLE account would have to request a taxpayer ID number from each contributor to the account.  Finally, the regulations provided that a signed physician’s diagnosis and other documentation would have to be filed with the Treasury Department.

After an outpouring of comments from the public, the IRS nixed the aforementioned requirements via a temporary Notice (which will be incorporated into final law), since the proposed requirements would be overly burdensome and could detract from an individual’s willingness to open an ABLE account.  Under the updated rules, no categorization is required for distributions, contributors taxpayer ID numbers are generally not required and the disability diagnosis certification simply needs to be maintained by the person opening the account, as opposed to being filed with the IRS.

These new rules should enable States to speed up the legislation process and make it easier for individuals to establish these accounts once the States have enacted the enabling legislation.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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