One reason I go to conferences is because certain necessary changes in the law can only come about through the hard work of organizations working in collaboration with policymakers and lawmakers. I attended a NAELA conference last week, and I am very pleased to share information about the ABLE (Achieving a Better Life Experience) Act. NAELA has been advocating this program for many years, and I am pleased to be part of an organization that helped make this a reality.
Please call my office at 516-307-1236 at your earliest convenience to discuss the impact these extenders will have on your 2014 returns and 2015 tax planning.
ABLE Accounts - The 2014 legislation allows states to create qualified ABLE programs beginning in 2015; however, Federal Regulations must be issued first. Similar to the popular 529 college savings accounts, contributions to ABLE program accounts grow tax-free. Accounts are available only to individuals diagnosed with a disability before age 26. Beneficiaries can maintain one ABLE account and must be a resident of the state administering the program.
Earnings on an ABLE account are exempt from income tax; distributions used for qualified disability expenses also are exempt. Qualified expenses include education, housing, transportation, employment training and support, health, assistive technology, legal fees and funeral expenses. Twice a year beneficiaries may, either directly or indirectly, dictate the investment of contributions or earnings in an account.
Money distributed from an account is taxed as ordinary income and subject to an additional 10% penalty tax if not used for a qualified purpose.
Individuals cannot deduct their contributions for income tax purposes, and any contribution amounts that exceed the annual limit will be subject to a 6% excise tax imposed on the beneficiary.
Contributions qualify for the annual gift tax exclusion ($14,000 for 2015) and are exempt from the generation-skipping transfer (GST) tax. Distributions also will be exempt from gift and GST taxes. [I.R.C. §529A (new)]
Treatment of ABLE accounts under certain federal programs - ABLE accounts rarely count against income limits for means-tested benefits, such as Supplemental Security Income (SSI) and Medicaid. If the beneficiary's resources from an account exceed $100,000, SSI benefits will be suspended until the account balance is less than that amount. Such a suspension will not affect an individual's eligibility for Medicaid.
Treatment of ABLE accounts in bankruptcy - If a bankruptcy occurs, contributions by a parent or grandparent of a beneficiary will be protected if they were made more than a year before the bankruptcy filing.
Again, if you have any questions, please at 516-307-1236.