Achieving a Better Life Experience (ABLE) Programs

Achieving a Better Life Experience (ABLE) Programs

Updated March 17, 2017
Achieving a Better Life Experience (ABLE) Programs
Background on ABLE Programs
A designated beneficiary is the eligible individual who
On December 19, 2014, President Barack Obama signed
establishes and owns the ABLE account. However, under
into law the Stephen Beck, Jr., Achieving a Better Life
proposed regulations issued by the Internal Revenue
Experience Act (ABLE Act) of 2014 as part of P.L. 113-
Service (IRS), if an individual is unable to establish or
295 (Division B). The ABLE Act created section 529A of
manage an ABLE account, an agent under a power of
the Internal Revenue Code (IRC), which allows states to
attorney, or if none, a parent or legal guardian may establish
establish and maintain a new type of tax-favored savings
and exercise signature authority over an ABLE account on
program designed specifically for individuals with
behalf of the designated beneficiary. To establish an ABLE
disabilities. The stated purpose of the act is to
account, an individual must have a qualifying impairment
that began before age 26. Specifically, the individual must
 encourage and assist individuals and families in saving
private funds for the purpose of supporting individuals
 be entitled to Social Security or SSI benefits due to
with disabilities to maintain health, independence, and
blindness or disability and such impairment occurred
quality of life; and
before the date the individual attained age 26; or
 provide secure funding for disability-related expenses
 be certified by a physician that his or her impairment
on behalf of designated beneficiaries with disabilities
meets the blindness or disability standards used for
that will supplement, but not supplant, benefits provided
children under the SSI program, regardless of the
through private insurance, Medicaid, Supplemental
individual’s age, and such impairment occurred before
Security Income (SSI), the beneficiary's employment,
the date the individual attained age 26.
and other sources.
Qualified disability expenses (QDEs) are expenses incurred
Under a state’s qualified ABLE program, contributions may
for the benefit of the designated beneficiary and are related
be made to the investment account of an eligible disabled
to his or her disability. QDEs include costs related to
individual, known as the designated beneficiary. Funds
education, housing, transportation, employment training
from an ABLE account may be used for the short-term
and support, assistive technology and personal support
needs or long-term benefit of the designated beneficiary to
services, health and wellness (including long-term services
pay for qualified disability expenses. ABLE programs are
and supports), financial management and administrative
modeled loosely on 529 college-savings plans, also known
services, legal fees, expenses for oversight and monitoring,
as qualified tuition programs. One notable difference
funeral and burial expenses, and other expenses identified
between the two is that, unlike 529 plans, a designated
in guidance published by the IRS. In the proposed IRS
beneficiary is limited to one ABLE account at a time.
regulations, QDEs are defined to include basic living
expenses and are not limited to costs for which there is a
Contributions to an ABLE account are not tax deductible
medical necessity or which benefit the designated
and must be made in cash from the contributor’s after-tax
beneficiary exclusively.
income. Total annual contributions to an ABLE account of
a designated beneficiary must not exceed the annual gift tax
Interaction with Federal Means-Tested
exclusion, which is $14,000 in 2017. (This amount is
Programs
adjusted annually for inflation.) Thus, the maximum
ABLE accounts have two distinct benefits for eligible
amount that an ABLE account can receive in 2017 from all
individuals with disabilities. First, assets in an ABLE
contributors (e.g., the designated beneficiary, family, and
account can grow tax-free annually and distributions from
friends) is $14,000. Contributors are not limited in the
the account for QDEs are not included in the designated
number of different beneficiaries to which they may
beneficiary’s gross income for federal income tax purposes.
contribute.
However, if distributions from an ABLE account are used
for non-QDEs, the earnings portion of the withdrawal (i.e.,
A qualified ABLE program must ensure that cumulative
the part attributable to investment growth) is subject to
contributions to an ABLE account on behalf of a designated
federal income tax as well as a 10% penalty.
beneficiary do not exceed the sponsoring-state’s limit for
aggregate contributions under its 529 plan. In most states,
Second, assets in an ABLE account and distributions from
this limit is between $250,000 and $500,000 per
the account for QDEs are excluded in determining a
beneficiary. No additional contributions may be made to an
designated beneficiary's eligibility for most federal means-
ABLE account once its balance reaches the cumulative
tested programs, including Medicaid. Under the SSI
limit.
program, however, only the first $100,000 in an ABLE
account is excluded. If the amount of ABLE funds over
$100,000 causes an SSI recipient to exceed SSI’s $2,000
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Achieving a Better Life Experience (ABLE) Programs
resource limit ($3,000 for a couple), the individual’s cash
18. The guidance assured states that may have operational
benefits are suspended—without a time limit—until the
programs prior to final regulations that they would be
ABLE account balance falls to or below $100,000. This
provided transition relief to enable state programs to be
suspension does not affect the SSI recipient's eligibility for
brought into compliance with federal criteria.
Medicaid. In addition, a distribution from an ABLE account
for housing-related QDEs is counted against the resource
On June 22, 2015, Treasury and IRS issued a Notice of
limit unless the distribution is spent in the month of receipt.
Proposed Rule Making (NPRM) for implementing the
ABLE Act (80 FR 35602). The NPRM provides the rules
Any assets remaining in an ABLE account upon the death
under which a state may establish and maintain an ABLE
of a designated beneficiary who participated in Medicaid
program. On August 7, 2015, Treasury and IRS issued
are used to reimburse the state Medicaid agency for
several technical corrections to the NPRM (80 FR 47430).
payments made on behalf of the beneficiary after
In comments to Treasury and IRS, states and disability
establishment of the ABLE account. This is similar to
advocates expressed concern over several aspects of the
Medicaid’s treatment of special needs trusts for individuals
NPRM regarding state responsibilities for administering an
with disabilities. However, this reimbursement is made only
ABLE program, namely, requirements to
after the payment of all outstanding QDEs and is net of any
premiums paid by or on behalf of the designated
 establish safeguards to categorize distributions from
beneficiary to the state’s Medicaid Buy-In program.
ABLE accounts;
Although ABLE accounts do not relax the basic financial
 collect taxpayer identification number (TIN) of each
eligibility criteria for SSI, the accounts allow certain
contributor to an ABLE account; and
individuals with disabilities to more easily establish or
maintain their eligibility for benefits. The ABLE Act
 process disability certifications with signed physicians’
effectively created a new SSI-resource exclusion that
diagnoses.
permits qualified individuals to hold more cash assets than
they otherwise could without having to spend down their
Specifically, commenters noted that these requirements
resources to meet the program's statutory limits. Similarly,
would impose substantial administrative and cost burdens
under Medicaid, assets in ABLE accounts are excluded as a
on states for maintaining a qualified ABLE program. In
resource for the purposes of determining eligibility.
response, Treasury and IRS released interim guidance in
Notice 2015-81 on November 20, 2015, relaxing these three
As with SSI and Medicaid, many other federal low-income
requirements to further facilitate states’ establishment of
programs use explicit income and resource tests to restrict
qualified ABLE programs. Treasury and IRS noted that
eligibility for benefits and services to individuals with
these changes would be addressed in the final regulations.
limited financial means. Thus, ABLE accounts allow more
individuals with disabilities to establish or maintain their
On December 18, 2015, President Obama signed into law
eligibility for other federal low-income programs because
the Consolidated Appropriations Act, 2016 (P.L. 114-113),
assets in and distributions from an ABLE account for QDEs
which contained the Protecting Americans from Tax Hikes
are disregarded in determining program eligibility. (ABLE
Act (PATH Act) of 2015. Among its many provisions, the
accounts generally do not affect eligibility for federal
PATH Act eliminated the requirement that an ABLE
programs without a means test, such as Social Security
account generally be established only in the designated
Disability Insurance [SSDI].)
beneficiary’s state of residence (Division Q). Consequently,
eligible disabled individuals in one state may open an
Because eligibility is limited to individuals whose disability
ABLE account in another state, provided the sponsoring-
began before the age of 26, ABLE accounts are likely to
state permits out-of-state residents to participate in its
benefit individuals with developmental or neurological
qualified ABLE program. Designated beneficiaries,
disorders that occur early on in life (e.g., Down syndrome,
however, are still limited to one ABLE account at a time.
autism spectrum disorder, cerebral palsy). Of the 7.2
million blind or disabled individuals on SSI in December
Status of ABLE Programs
2015, about 44% first became eligible for the program
On June 1, 2016, Ohio became the first state to launch an
before the age of 26.
ABLE program. According to the disability advocacy
organization The Arc (thearc.org), as of February 27, 2017,
ABLE Act Implementation
18 states had active ABLE programs. Some programs limit
To date, the Treasury Department and IRS have issued
enrollment to in-state residents only, while others permit
proposed regulations and departmental guidance. Certain
out-of-state residents to participate. Many more states have
federal agencies, such as the Social Security Administration
enacted ABLE legislation and additional programs are
and the Food and Nutrition Service at the U.S. Department
expected to be operational in 2017.
of Agriculture, have also released guidance on the treatment
of ABLE accounts under their respective programs. The
William R. Morton, Analyst in Income Security
following section details key developments in the
Kirsten J. Colello, Specialist in Health and Aging Policy
implementation of the ABLE Act.
IF10363
On March 23, 2015, Treasury and IRS released preliminary
guidance on ABLE programs and accounts in Notice 2015-
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Achieving a Better Life Experience (ABLE) Programs

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https://crsreports.congress.gov | IF10363 · VERSION 3 · UPDATED