IRS rethinks rules for savings accounts to care for young people with disabilities

The tax-advantaged savings accounts that Congress approved late last year to cover costs of caring for young individuals with disabilities are a step closer to being available.

The Internal Revenue Service on Friday issued changes to the proposed rules for how states can offer and operate these 529 Achieving a Better Life Experience (ABLE) accounts.

Congress approved legislation last December that allowed states to offer these accounts for people who became disabled before the age of 26.

But it was up to the IRS to approve the details of how these accounts, similar to 529 college savings plans, will work.

NO SOCIAL SECURITY NUMBERS
The latest guidelines said states mostly would not have to collect taxpayer Social Security numbers from those who contribute to such an account. It also said those who apply for an account won't have to submit physician documentation showing a disability diagnosis, the IRS wrote in a notice Friday.

“These are important issues for an administrator,” said Andrea Feirstein, president of AKF Consulting.

Two states, Nebraska and Ohio, have begun soliciting possible service providers even though the IRS rules haven't been finalized. More than 40 states have initiated or approved legislation to facilitate the accounts, Ms. Feirstein said.

FIRST OR SECOND QUARTER
It will likely be the first or second quarter of 2016 before any state is making the accounts available, she said.

Under the law, individuals can contribute up to $14,000 — the current annual gift exclusion amount — in a given taxable year into an ABLE account.

Account holders could take distributions, provided they are for the beneficiary's disability expenses, and those amounts would not be include in gross income for tax purposes.

One of the biggest benefits of the ABLE account is that the money held there is exempt from the $2,000 limit on personal assets for individuals who wish to qualify for public benefits. Generally, a disabled person with more than that amount is ineligible for Medicaid and Supplemental Security Income benefits.

Full Article & Source:
IRS rethinks rules for savings accounts to care for young people with disabilities