On Monday, June 23, the IRS issued a proposed rule regarding the implementation of the ABLE Act. In this proposed rule, the IRS unveiled guidelines for the ABLE Act. This law was designed to allow people with disabilities to save money without risking their government benefits.
This is the first time specifics for the new accounts have become available. It clarifies what expenses the money can be used for and how these accounts should function. It appears that the IRS took a lenient view as to what counts as a qualified disability expense. The ABLE Act mandates that money from this account can be used for transportation, housing and education. Other expenses could be covered by the ABLE Act, but those had to be determined by the regulators.
The proposal states, “The treasury department and the IRS concluded that the term ‘qualified living expenses’ should be broadly construed to permit the inclusion of basic living expenses and should not be limited to expenses for items for which there is a medical necessity or which provide no benefits to others in addition to the benefit of the eligible individual.”
There are other details within the proposal that are causing some concern. The reporting and oversite requirements outlined go beyond those governing 529 college savings plans that the ABLE accounts were modeled on. This could make ABLE accounts difficult to administer or utilize. Every time money from the account is to be spent, the individual will have to file paperwork with the state that demonstrates each expense falls under the category of qualified disability expense.
The proposed rules will be up for public comment for 90 days before the IRS issues final regulations. The public comment will be taking place in Washington D.C.
During this time, several states will be working to make the ABLE Act a reality for residents. Despite the federal law, each state must put their own regulations in place before making the accounts available.
The ABLE Act has been enacted in 22 states thus far. Each of these states is still working out the details related to administering the program. Some advocates believe that the states will likely wait for the IRS to issue their final rules before allowing financial institutions to begin offering ABLE accounts.
If you would like to read the proposed rules, please visit: http://www.gpo.gov/fdsys/pkg/FR-2015-06-22/pdf/2015-15280.pdf
If you would like to take part in public comment, please contact:
A public hearing will be taking place on October 14, 2015. All comments must be received by September 21, 2015.