IRS Rule: Guidance Under Section 529A – Qualified ABLE Programs
The rule was issued by
DATES: Effective date: These final regulations are effective
FOR FURTHER INFORMATION CONTACT: Concerning the final regulations under section 529A,
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This document contains final regulations that provide guidance regarding programs under the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act).
The ABLE Act provides rules under which States or State agencies or instrumentalities may establish and maintain a Federal tax-favored savings program for eligible individuals with a disability who are the owners and designated beneficiaries of accounts to which contributions may be made to meet qualified disability expenses.
These accounts also receive favorable treatment for purposes of certain means-tested Federal programs.
In addition, these final regulations provide corresponding amendments to the unrelated business income tax regulations, the gift and generation-skipping transfer tax regulations, and the electronic filing requirements regulations.
These regulations affect eligible individuals that are designated beneficiaries of accounts established and maintained under the ABLE Act.
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations amending 26 CFR parts 1, 25, 26 and 301, to provide guidance under section 529A of the Internal Revenue Code (Code). Section 529A provides rules under which States or State agencies or instrumentalities may establish and maintain a Federal tax-favored savings program through which contributions may be made to the account of an eligible individual with a disability to meet qualified disability expenses.
1. The ABLE Act
Section 529A was added to the Code on
Section 529A allows the creation of a qualified ABLE program by a State (or agency or instrumentality thereof) under which a separate ABLE account may be established for an eligible individual with a disability who is the designated beneficiary and owner of that account. Generally, contributions to an ABLE account are subject to both an annual limit and a cumulative limit, and, when made by a person other than the designated beneficiary, are treated as gifts to the designated beneficiary. These gifts may be sheltered from Federal gift tax by the annual per-donee gift tax exclusion. Distributions from an ABLE account for the qualified disability expenses of the designated beneficiary are not included in the designated beneficiary's gross income. However, the earnings portion of distributions from an ABLE account in excess of the qualified disability expenses generally is includible in the gross income of the designated beneficiary. An ABLE account may be used for the long-term benefit or short-term needs of the designated beneficiary.
Section 103 of the ABLE Act, while not a tax provision, is critical to achieving the goal of the ABLE Act of providing financial resources for the benefit of individuals with disabilities. Because so many of the programs that provide essential financial, occupational, and other resources and services to individuals with disabilities are available only to persons whose resources and income do not exceed relatively low dollar limits, section 103 generally disregards a designated beneficiary's ABLE account (specifically, the account balance, contributions to the account, and distributions from the account) for purposes of determining the designated beneficiary's eligibility for, and the amount of any assistance or benefits provided under, certain means-tested Federal programs. However, in the case of the Supplemental Security Income (SSI) program under title XVI of the Social Security Act, distributions for certain housing expenses are not disregarded, and the balance (including earnings) in an ABLE account is considered a resource of the designated beneficiary to the extent it exceeds
Finally, section 104 of the ABLE Act addresses the treatment of ABLE accounts in bankruptcy proceedings.
2. Guidance
A. Notice 2015-18
Shortly after the ABLE Act was enacted, the
B. 2015 Proposed Regulations
On
More than 200 written comments were received in response to the 2015 proposed regulations and a public hearing was held on
In response to the request for interim guidance, the
3. The PATH Act Amendment
On
4. The TCJA
The contribution limits and other provisions of section 529A were modified by the Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054, (2017) (TCJA), signed into law on
New section 529A(b)(7)(A) identifies a designated beneficiary eligible to make this additional contribution as one who is an employee (including a self-employed individual) with respect to whom there has been no contribution made for the taxable year to: A defined contribution plan meeting the requirements of sections 401(a) or 403(a); an annuity contract described in section 403(b); or an eligible deferred contribution plan under section 457(b). Section 529A(b)(7)(B) defines the term "poverty line" as having the meaning provided in section 673 of the Community Services Block Grant Act (42 U.S.C. 9902).
The TCJA also amended section 529 (regarding qualified tuition programs) to allow, before
A. Notice 2018-62
To address the TCJA modifications to section 529A, the
B. 2019 Proposed Regulations
On
The 2019 proposed regulations confirmed that the employed designated beneficiary, or the person acting on his or her behalf, is solely responsible for ensuring that the requirements in section 529A(b)(2)(B)(ii) are met and for maintaining adequate records for that purpose. In addition, to minimize burdens for the designated beneficiary and the qualified ABLE program, the 2019 proposed regulations provided that ABLE programs may allow a designated beneficiary or the person acting on his or her behalf to certify, under penalties of perjury, that he or she is a designated beneficiary described in section 529A(b)(7) and that his or her contributions of compensation do not exceed the limit set forth in section 529A(b)(2)(B)(ii).
The 2019 proposed regulations also clarified that the poverty line in section 529A(b)(7)(B) is to be determined by using the poverty guidelines updated periodically in the
Because section 529A(b)(2) provides that rules similar to those set forth in section 408(d)(4) regarding the return of excess contributions to an individual retirement account or annuity apply to ABLE accounts, the 2019 proposed regulations provided that a qualified ABLE program must return any contributions of the designated beneficiary's compensation in excess of the limit in section 529A(b)(2)(B)(ii) to the designated beneficiary.
The 2019 proposed regulations also provided that it will be the sole responsibility of the designated beneficiary (or the person acting on the designated beneficiary's behalf) to identify and request the return of any excess contribution of such compensation income. Such returns of excess compensation contributions must be received by the employed designated beneficiary on or before the due date (including extensions) of the designated beneficiary's income tax return for the year in which the excess compensation contributions were made. A failure to return excess contributions within this time period will result in the imposition on the designated beneficiary of a 6 percent excise tax under section 4973(a)(6) on the amount of excess compensation contributions.
Finally, in order to minimize administrative burdens for the designated beneficiary and the qualified ABLE program, for purposes of ensuring that the limit on contributions made under section 529A(b)(2)(B)(ii) is not exceeded, the 2019 proposed regulations provided that a qualified ABLE program may rely on self-certifications, made under penalties of perjury, of the designated beneficiary or the person acting on the designated beneficiary's behalf.
Six comments were received in response to the 2019 proposed regulations. No public hearing was requested or held.
The document is published in the
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