Administrative requirements eased for ABLE accounts

Are you ready to establish an Achieve a Better Life Experience (ABLE) account? If so, a recent IRS notice can help ease the administrative requirements. Here’s what you need to know.

ABLE accounts were created by the Tax Increase Prevention Act of 2014. These tax-advantaged accounts are designed to help you build savings to care for yourself or a loved one with disabilities while maintaining eligibility for benefit programs such as Medicaid. Generally you’ll qualify for an ABLE account if your disability occurred before age 26.

While states will create the programs that allow ABLE accounts, the IRS issues the tax guidance, and the rules are similar to those for Section 529 college savings plans. That means ABLE accounts grow tax-deferred and you can take tax-free distributions when you use the funds to pay qualified disability expenses. Anyone can contribute to an ABLE account, up to the maximum limit of $14,000 for 2016.

Under the latest notice from the IRS, three ABLE account requirements have been changed.

  • Use of distributions. The ABLE program no longer needs to determine whether distributions from the accounts will be used for qualified disability expenses. However, you or the family member you’ve designated as the account beneficiary must maintain records that substantiate the tax status of your withdrawals.
  • Request for taxpayer identification numbers. The ABLE program no longer needs to ask for a taxpayer identification number from account contributors. Note that amounts in excess of the annual limit of $14,000 must be returned to the contributor, and an identification number may need to be provided at that time.
  • Less restrictive documentation of eligibility. Instead of providing private medical information to establish an account, ABLE account beneficiaries can sign a statement of qualification under penalty of perjury. The beneficiary must keep the detailed medical records proving eligibility, and provide the documents to the IRS if requested.

Give us a call for more information about these accounts and other tax-related disability benefits.