Six months after a federal law paved the way for tax-free savings accounts for people with disabilities, officials are providing details on how they expect the new program to operate.
In a proposed rule issued Monday, the Internal Revenue Service unveiled guidelines for the Achieving a Better Life Experience, or ABLE, Act. The federal law is designed to allow people with disabilities to save money without risking their government benefits.
The proposal offers specifics for the first time on how the new accounts should function and clarifies what types of expenses money saved in an ABLE account could be used for.
Advocates say they’re pleased that the IRS took a lenient view in determining what counts as “qualified disability expenses” under the law. Though the ABLE Act mandates that money can be used for specific purposes including transportation, housing and education, the law also allows for “other expenses” and it is up to regulators to determine what should qualify.
“The Treasury Department and the IRS conclude that the term ‘qualified disability 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 to the eligible individual,” the proposal states.
The view that expenses must merely offer a quality of life benefit for a person with a disability — rather than be of medical merit — is significant, said Heather Sachs, vice president of advocacy and public policy at the National Down Syndrome Society.
“We’re glad to see that a person with a disability would not have to justify the purchase of an iPhone or something similar as a medical expense,” Sachs said.
Other details within the proposal are causing concern, however. The reporting and oversight requirements outlined go beyond those governing 529 college savings plans that the ABLE accounts were modeled on and could make the disability savings vehicles onerous to administer or utilize, advocates and state officials say.
“As I read the proposed regulations, every time individuals with disabilities want to spend even a single dollar of their money, from their own ABLE accounts, they have to file paperwork with the state demonstrating that each is a ‘qualified disability expense,’” said Nebraska State Treasurer Don Stenberg. “This is a slap in the face of Americans with disabilities, is an unreasonable and unnecessary burden on them, and will create administrative burdens that will increase the costs qualified individuals will need to pay to use the program.”
The proposed rules will be up for public comment for 90 days before the IRS issues final regulations.
In the meantime, several states are working to make the ABLE Act a reality for their residents. Despite the federal law, each state must put their own regulations in place before making the accounts available.
Currently, the ABLE Act has been enacted in 22 states, according to the National Down Syndrome Society. Each of these states, however, is still working out details related to administering the program.
Sachs said she expects that states will likely wait for the final IRS rules to be issued before allowing financial institutions to begin offering ABLE accounts.
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