Funding Disability Expenses Using ABLE Accounts

The Tax Increase Prevention Act of 2014, passed late last year, allows states to establish and maintain a new type of tax-advantaged savings program for people with disabilities. The new savings legislation is provided under Section 529A of the Internal Revenue Code and is used to help fund qualified disability expenses. It is referred to as the Achieving a Better Life Experience (ABLE) Act.

Reports by advocacy groups monitoring progress by the states in establishing ABLE Act programs suggest three states have passed enabling legislation and 29 others have draft bills under consideration in their current legislative sessions. However, the IRS has not yet issued specific guidance on ABLE accounts, and there has been concern about the status of state-specific programs and accounts established prior to the issuance of the IRS guidance.

In Notice 2015-18, the IRS assures states and individuals that their ABLE programs and accounts will not fail to receive the intended federal tax benefits merely because a state's legislation or account documents "do not fully comport with the guidance when issued." In addition, the notice says that the anticipated guidance will include transition relief allowing sufficient time for programs and accounts to comply with the new rules.

Click here to read our full article on the advantages and limitations of ABLE accounts.