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IRS Issues States Assurances on ABLE Accounts

March 11, 2015

The IRS has issued guidance assuring transition relief to states creating savings accounts made possible by The Achieving a Better Life Experience Act (ABLE) enacted at the federal level last year. ABLE accounts, modeled after 529 college savings plans, allow families to set aside funds in tax-preferred accounts for disability-related expenses.

The guidance offers assurances that moving forward the IRS will “provide transition relief with regard to necessary changes to ensure that the state programs and accounts meet the requirements in the guidance, including providing sufficient time after issuance of the guidance in order for changes to be implemented.”

“Guidance issued from the IRS on ABLE accounts is a big step forward to ensure that families across the country will have access to the accounts.” said Stuart Spielman, Senior Policy Adviser and Counsel at Autism Speaks.  

Federal ABLE legislation which was signed into law in December of 2014 amended the tax code to allow tax-free savings accounts to help finance disability-related needs and disregards the current $2,000 cap on savings for individuals with disabilities. Under previous law, people with disabilities who saved more than $2,000 would not qualify or would risk the loss of their Supplemental Security Income (SSI), Medicaid and other benefits.

 An excerpt from the guidance is below.

“The Treasury Department and the IRS do not want the lack of guidance to discourage states from enacting their enabling legislation and creating their ABLE programs, which could delay the ability of the families of disabled individuals or others to begin to fund ABLE accounts for those disabled individuals.  Therefore, the Treasury Department and the IRS are assuring states that enact legislation creating an ABLE program in accordance with section 529A, and those individuals establishing ABLE accounts in accordance with such legislation, that they will not fail to receive the benefits of section 529A merely because the legislation or the account documents do not fully comport with the guidance when it is issued.  The Treasury Department and the IRS intend to provide transition relief with regard to necessary changes to ensure that the state programs and accounts meet the requirements in the guidance, including providing sufficient time after issuance of the guidance in order for changes to be implemented.”

Read more on ABLE accounts HERE.