Published in the Federal Register are IRS proposed regulations that reflect statutory changes to Achieving a Better Life Experience (ABLE) savings accounts. ABLE programs are established by states to allow tax-advantaged saving for certain qualified expenses of special needs individuals.
Contributions by Special Needs Beneficiaries
Prior to enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), aggregate annual contributions to an ABLE beneficiary’s account by all contributors could not exceed the federal gift tax exclusion (currently $15,000). A provision of TCJA allows additional contributions above this limit if they are made by the special needs beneficiary of the account when based on his or her own employment.
This additional contribution for a year is limited to the lesser of
- income earned by the special needs beneficiary or
- the federal poverty level for a one-person household (currently $12,490).
Additional Contribution Considerations
- Determination of eligibility to make such contributions rests with the designated beneficiary or a person acting on his or her behalf.
- Excess contributions and their earnings are to be removed from an ABLE account by the methodology used to correct IRA excess contributions.
Rollovers from 529 Plans to ABLE Accounts
A second TCJA statutory change reflected in this guidance is the ability to roll over amounts from a 529 plan (tax-advantaged education savings) account to an ABLE account. This rollover must meet the following conditions.
- The rollover must originate in the 529 plan account of the special needs beneficiary or another family member.
- The rollover amount, when added to other contributions to the account for the year (not including contributions by the special needs beneficiary), cannot exceed the annual federal gift tax exclusion ($15,000).
Both the special needs beneficiary contribution and 529 plan rollover provisions of the TCJA were previously addressed with interim guidance published in IRS Notice 2018-62.
Change in Residency Requirements
In addition to addressing these TCJA changes, these new proposed regulations state that current proposed ABLE regulations will—when finalized—reflect a 2015 statutory change found in the Protecting Americans from Tax Hikes (PATH) Act. That legislation removed a residency requirement that limited state ABLE programs to establishing accounts only for special needs beneficiaries who resided in that state, or in a “contracting state” (a multi-state program).
Comments and Applicability Date
Comments on these proposed regulations will be accepted for a period of 90 days from their publication in the Federal Register (October 10, 2019).
This guidance is described as being applicable for “taxable years beginning after date of publication.”