NOVEMBER 23, 2015 VOLUME 22 NUMBER 43
The Achieving a Better Life Experience (ABLE) Act initially looked like it would provide important opportunities to people with disabilities. Although much work was left to the Internal Revenue Service, the Social Security Administration and individual states, advocates hoped that it might open up a simple choice for beneficiaries to save money, and enhance autonomy.
The IRS issued its proposed regulations last June, and those hopes appeared to be shaky. The proposed regulations required a lot of administrative oversight, and made it look like the cost of managing ABLE Act accounts might make them look unattractive to individuals, family members and even state governments.
This week the IRS reconsidered, and issued something it calls “interim guidance” on ABLE Act regulations. The proposed regulations will now be revised to focus on ease of administration, opening up possibilities for the future, once states have finalized their ABLE Act plans.
What changed? Three important things, listed below. In addition, the Social Security Administration (which also has to adopt ABLE Act regulations) has given an exciting hint about how it might interpret the Act — making the possibilities for positive impact even greater. Here are the new developments:
- Simplified reporting by ABLE Act custodians and state programs. The proposed regulations published in June would have required someone — presumably the ABLE Act account managers in each state — to review each distribution from an ABLE Act account to determine whether it was proper. Advocates were concerned that this would dramatically increase the cost of ABLE Act programs (perhaps to the point of crippling those programs), and slow down distributions for needed — and usually unquestioned — disability expenditures. The IRS heard that complaint, and has let us know that the final regulations will require the ABLE Act beneficiary to keep track and file appropriate tax returns. That’s excellent news for the usefulness of ABLE Act accounts.
- Detailed information about contributors no longer required. The original proposed regulations would have required any person making a contribution to an ABLE Act account to provide a Social Security number. The IRS’s concern: the possibility that excess contributions might be made in a given year, and earnings would need to be reported when the excess was returned. Instead, the new regulations will allow contributors to skip the Social Security number requirement so long as the state program has a mechanism to prevent excess contributions in the first place.
- No need to prove disability to the ABLE Act custodian. An ABLE Act account can only be opened for a person who has a disability. That will usually mean that the beneficiary is receiving Supplemental Security Income (SSI) or Social Security Disability (SSD) payments, but some beneficiaries will have to establish their eligibility by providing diagnosis information — and they will have to show that their disability began before age 26. The original regulations would have required the ABLE Act custodian to collect, review and maintain those medical records. After advocates pointed out that this was unnecessarily complicated and might sometimes even be dangerous, the IRS changed direction and decided to require that the person opening the ABLE Act account should simply be required to swear that the beneficiary qualifies, under penalty of perjury. The same record-keeping will be required, but records can stay with the beneficiary or family members instead of being held in a central office at a financial institution or state agency.
- Then there is the potentially excellent news from the Social Security Administration. While SSA’s proposed regulations have not been issued, there are hints that they will agree that ABLE Act distributions for housing-related expenses are not disqualifying for SSI purposes. That could mean terrific possibilities for family assistance with the cost of housing — a perennial problem for SSI recipients under current regulations. It’s too early to know for sure exactly how Social Security will decide this question, but it’s exciting news nonetheless.
Before we leave the topic, let’s review the ABLE Act itself. There is plenty of information available on the history of the Act, how it changed over time, and the financial compromises Congress made in passing the Act, but the real importance is how the Act will work as finally adopted. Here are some highlights:
- States can set up ABLE Act accounts, but are not required to do so. Arizona is moving more slowly than most other states, but is considering how to authorize an ABLE Act program. Advocates are hopeful that patience will be rewarded in the next legislative session, beginning in January, 2016.
- Persons with disabilities — and their families and concerned friends — can make a total of up to $14,000 in contributions to an account in a given year. The $14,000 maximum is as to the total of all contributions, not the contribution for each person. Still, that raises the possibility of about $1,000/month in assistance for a person receiving SSI and/or Medicaid (AHCCCS, in Arizona), or for significant savings by the person with a disability.
- Total contributions over the life of the ABLE Act account are capped, but at very high numbers (currently over $400,000 for Arizona). If the ABLE Act account grows to be more than $100,000 there are other problems, but that simply can’t be an issue for the next seven years or so.
- The ABLE Act account will ordinarily be managed by the person with a disability, not by donors, family members or others. There will be special procedures for beneficiaries who are minors or incapacitated, but those rules aren’t yet written.
- One big downside: whatever is left in the ABLE Act account at the beneficiary’s death will revert to the state, to the extent that Medicaid/AHCCCS benefits have been received. That will make the ABLE Act account unattractive in some situations, but not by any means in all cases.
There is more — lots more. But the new direction from the IRS is promising, and makes advocates for people with disabilities hopeful about the future of ABLE Act accounts. Stay tuned.