History of the ABLE Act
The ABLE (Achieving a Better Life Experience) Act was signed into law on December 19, 2014 as part of the Tax Increase Prevention Act of 2014, amended Section 529 of the Internal Revenue Service Code of 1986. The ABLE Act created tax-free savings accounts for individuals with disabilities to pay for qualified disability-related expenses (including education, housing and transportation). The law made it possible, for the first time, for people with disabilities to save and pay for extra costs associated with living with a disability and to enhance their financial health, independence and quality of life.
Contributions are subject to annual and cumulative limits and are treated as gifts for federal gift tax purposes. Contributions deposited into an ABLE account do not replace benefits provided through private insurances, the Medicaid program, the Supplemental Security Income (SSI) program, the beneficiary’s employment and other sources. Instead, the funds supplement these benefits. ABLE accounts may offer savings, checking and investment options. Investment growth is not taxable when the funds are used to pay for qualified disability expenses (QDEs).
After the initial ABLE Act was signed into law, there have been subsequent notices, proposed regulations, amendments, new acts and final regulations.
The links below have more details on The ABLE Act, as well as each notice, proposal, revision and act that followed.
The ABLE Act (Section 529A)
- Enactment: December 19, 2014. Passed as part of the Tax Increase Prevention Act of 2014.
- Purpose: To provide secure funding for disability-related expenses without supplanting other benefits.
- Account Creation: Allows states to create ABLE accounts for individuals with disabilities who are the designated beneficiaries and owners.
- Contributions: Subject to annual and cumulative limits; treated as gifts for federal gift tax purposes.
- Distributions: Tax-free if used for qualified disability expenses; otherwise, taxable.
- Means-Tested Programs: ABLE accounts disregarded for most federal assistance programs. SSI program disregards up to $100,000.
- Bankruptcy Treatment: Specifies the treatment of ABLE accounts in bankruptcy proceedings.
- Input: Congressional Champions included Sens. Robert Casey, Jr. (D-PA) and Richard Burr (R-NC), and Representatives Ander Crenshaw (R-FL), Chris Van Hollen (D-MD), Cathy McMorris Rodgers (R-WA) and Pete Sessions (R-TX). The ABLE Act is named after the late Stephen Beck Jr., a father of two daughters – Mariae Rose and Natalie – who made it his life’s passion to ensure that Natalie, who has Down syndrome, had the same opportunities to save as everyone else. Mr. Beck passed away just days after the U.S. House of Representatives passed the ABLE Act. He was one of the five parents around a Northern Virginia kitchen table whose discussions around inequities ultimately resulted in the ABLE Act.
- Issued: March 23, 2015 by Treasury and IRS.
- Purpose: Prevent states from delaying ABLE programs due to lack of guidance.
- Key Points: Designated beneficiary is the account owner; person with signature authority has no beneficial interest.
- Issued: June 22, 2015.
- Coverage: Requirements for establishing ABLE accounts, contribution limits, tax consequences, rollovers and reporting.
- Public Input: More than 200 comments received; public hearing held.
- Issued: December 7, 2015.
- Purpose: Interim guidance addressing significant barriers in proposed regulations.
- Key Changes: Eliminates requirements for categorizing expenses, taxpayer identification number (TIN) requests for contributors and processing physician diagnoses.
The PATH Act Amendment (Protecting Americans from Tax Hikes Act of 2015 as part of the Consolidated Appropriations Act of 2016)
- Legislative Context: The PATH Act amendment was a comprehensive piece of tax legislation primarily aimed at extending several expiring tax provisions and making other tax benefits permanent. The amendment to the ABLE Act was included within this broader legislative package as part of efforts to improve and expand the functionality and accessibility of ABLE accounts.
- Enactment: December 18, 2015.
- Change: Removed state residency requirement for ABLE account beneficiaries.
The ABLE to Work provision of The Tax Cuts Jobs Act (TCJA)
- Legislative Context: The TCJA was a major tax reform law which included a wide range of tax changes affecting individuals, businesses, and estate taxes. The ABLE to Work provision was included as part of the broader effort to enhance savings opportunities for individuals with disabilities. It reflects ongoing efforts to expand the benefits of ABLE accounts to support the financial independence of individuals with disabilities who are employed.
- Enactment: December 22, 2017.
- Modifications: Increased contribution limits for employed beneficiaries, record-keeping requirements and allowed rollovers from 529 accounts to ABLE accounts.
- Implementation: Notices and proposed regulations issued to address changes and ensure compliance. To be eligible for increased contribution limits, the ABLE account holder, or their employer, cannot contribute into a defined contribution plan such as 401(a), 403(a) or 401(k) plan; an annuity such as a 403(b) contract; or an eligible, deferred compensation plan, such as a Section 457(b) plan, in the calendar year.
If this eligibility rule is met, the ABLE to Work provision allows ABLE account owners to save an additional amount from whichever is less:
The account owner’s gross income for that taxable year, or
- See current contribution limits
- Additional contributions may be made each year through the end of 2025 when the ABLE to Work Act is set to expire.
A bonus to this tax reform is the expansion of the “Saver’s Credit” for ABLE account owners who contribute into their own ABLE account. An ABLE account owner who works may be eligible for a tax credit of up to $2,000 for contributions from their income saved within their ABLE account.
- Issued: August 20, 2018.
- Purpose: Announced intent to issue proposed regulations to implement TCJA changes.
- Issued: October 10, 2019.
- Clarifications: Addressed TCJA modifications, self-certifications for contributions and excess contributions handling.
- Public Input: Six comments received; no public hearing requested.
- Issued: November 19, 2020.
- Key Provisions: Finalized rules for ABLE programs and accounts, incorporating feedback from proposed regulations.
- Clarifications:
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- Eliminated requirement to categorize distributions by type.
- Removed mandatory TIN collection for contributors with adequate system to reject excess contributions.
- Allowed certification of eligibility in lieu of physician’s signed diagnosis.
- Emphasized responsibility of beneficiaries or their representatives to manage and ensure compliance with contribution limits and excess contributions.
- Implementation: Provided states and ABLE programs with definitive guidelines to ensure compliance and facilitate the establishment and maintenance of ABLE accounts.
Section 124 of Secure 2.0 (often referenced as the ABLE Age Adjustment Act)
- Enactment: December 29, 2022. Passed as part of the Omnibus Spending Bill, Consolidated Appropriations Act. This will go into effect on January 1, 2026.
- Key Change: Amended section 529A to extend the age of onset of disability for ABLE account eligibility from 26 to 46 years old, expanding access to ABLE accounts for individuals who become disabled later in life.
- Impact: Increases the number of individuals who can benefit from ABLE accounts, enhancing financial security and support for a broader group of people with disabilities, including Veterans.
- Public Input: National Disability Institute (NDI), founder and manager of the ABLE National Resource Center, ABLE supporters and disability advocates from across the country strongly supported this change.