The Internal Revenue Service recently released new guidelines for implementing the Achieving a Better Life Experience (ABLE) Act of 2014. The Act, a federal law which paves the way for millions of disabled Americans to have tax-free accounts to help save for their disability expenses, went into effect earlier this year. The proposed regulations provide guidance and clarity on a number of issues, including: (1) the requisite qualifications for eligibility for an ABLE account; (2) limits on contributions to the account; and (3) what qualifies as a disability expense. The IRS has decided to broadly construe the term ‘qualified disability expense,’ taking the view that expenses should not be restricted to those which are medical necessities, instead encompassing expenses that can improve the quality of life for the individual. Despite this leniency, the burdensome requirement to file accompanying paperwork justifying each ‘qualified disability expense’ is sparking some concern. The IRS has additionally stated that it will require users of the ABLE accounts to file two new forms reporting relevant account information to designated beneficiaries and the IRS on an annual basis, Form 1099-QA for distributions and Form 5498-QA for contributions.
The proposed regulations are up for public comment until Sept. 21, 2015. Although taxpayers and current ABLE program administrators may rely on these proposed regulations, it is likely that many states will hold off until final regulations are issued before allowing financial institutions to make ABLE accounts available.