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IRS ISSUES FINAL ABLE REGULATIONS
On November 19, 2020, the Internal Revenue Service (IRS) published the final regulations for the ABLE Act
in the federal register under Section 529a of the IRS code. The rules provide guidance to states in their
management of state ABLE plans and to people with disabilities and their families regarding the use of and
contributions to ABLE accounts as a tax-favored savings program. The final rule reconfirms that ABLE
accounts are to “secure funding for qualified disability-related expenses on behalf of designated
beneficiaries with d
isabilities that will supplement not supplant benefits otherwise available to those
individuals whether through private sources, employment, public programs or otherwise.”
The IRS regulations provide a transition period of at least two years for ABLE plans to implement the
regulations which gives the IRS an opportunity to address concerns and issues through notices or other
guidance. Certain select provisions from the final regulations are summarized below.
KEY TAKEAWAYS FROM IRS FINAL RULE:
• General Guidance
• ABLE Account Eligibility
• Contributions into an ABLE Account
• Distributions / Qualified Disability Expenses (QDEs)
• ABLE Account Rollovers
• ABLE Account Owner’s Death & Treatment of Remaining Funds
GENERAL GUIDANCE
1. A person who meets ABLE eligibility is allowed one ABLE account.
2. An ABLE account can be used for long-term benefit or short-term needs of the designated
beneficiary through distributions for qualified disability expenses (QDEs).
ABLE ACCOUNT ELIBILITY
3. The term “eligible individual” includes those individuals whose SSA entitlement to benefits was
suspended due to excess income or resources.
4. The standard of disability eligibility, under section 529A, is applied without regard to either the
individual’s age or whether the individual is engaged in substantial gainful activity.
5. The priority for opening an account is as follows in this order:
a. eligible individual with a disability
ABLE National Resource Center
1667 K STREET NW, SUITE 480 | WASHINGTON D.C., 20006
PHONE: (202) 296.2040 | FAX: (202) 296.2047
b. individual selected by the eligible individual (note: An eligible individual with legal
c
apacity may delegate responsibility for another person to establish, or to serve as the
person with signature authority over the account.)
c. individual’s agent under a power of attorney, conservator or legal guardian
d. a spouse, parent, sibling or grandparent
e. representative payee (individual or organization).
6. A person may self-certify that they are authorized to open the ABLE account and there is no
other person with higher priority to establish the account. The state ABLE program can accep
t
t
he certification.
7. The account cannot be established as a custodial Uniform Gift to Minors Act (UGMA) account or
Un
iform Transfer to Minors Act (UTMA) account.
8. For those who have not received SSI and/or SSDI prior to age 26, a disability certification may be
obtained and signed by a doctor of medicine or osteopathy, a doctor of dental surgery or dental
medicine and, for some purposes, a doctor of podiatric medicine, a doctor of optometry or a
chiropractor. They may not be signed by a licensed psychologist, clinical therapist or certified
vocational rehabilitation counselor. The final regulations include the criteria of what must be
included in the certification.
9. There is the flexibility for allowing ABLE sub-accounts with a different signatory or co-signatories
which can be used for different types of expenditures/distributions.
10. An eligible individual with legal capacity may delegate signature authority over the ABLE accoun
t
t
o any other person. The eligible individual may remove and replace from time to time the
individual with signature authority and name a successor signatory. The regulations also allow a
p
erson with signature authority to name a successor signatory, consistent with the ordering rule
above, if the designated beneficiary lacks the legal capacity to do so.
11. A state ABLE program may limit its program to its own state residents or have no residency
requirements, allowing eligible individuals with disabilities from any state to open an ABL
E
ac
count. The regulations also do not require a state to establish or participate in an ABLE plan.
12. The final rule retains the approach of the 2015 proposed regulations that a state ABLE plan must
an
nually determine continuing eligibility of an ABLE account owner. Flexibility is offered states
to adopt methods for recertification including, but not limited to, certification by the designated
beneficiary under penalty of perjury.
13. Consistent with the proposed regulations, when medical improvement occurs and there is a loss
of eligibility, the ABLE account remains an ABLE account. Contributions may continue
throughout that calendar year. However, unlike the proposed regulations, distributions made on
any date after the loss of eligibility (i.e., medical improvement) are not qualified disability
expenses.
CONTRIBUTIONS INTO AN ABLE ACCOUNT
14. Contributions to an ABLE account are subject to an annual limit (set at the federal level) and a
cumulative limit (set by individual states).
15. If or when the state cumulative limit is reached, contributions may resume when a distribution
causes the account balance to fall below the limit, subject to the annual and cumulative limits.
ABLE National Resource Center
1667 K STREET NW, SUITE 480 | WASHINGTON D.C., 20006
PHONE: (202) 296.2040 | FAX: (202) 296.2047
16. Funds contributed to and growing in an ABLE account are not considered an “asset” and are not
allowed to impact eligibility for a federal means-tested public benefit such as Social Security o
r
M
edicaid.
17. Contributions to an ABLE account may be made by any person and by “trusts and tax-exempt
o
rganizations.”
18. ABLE contributions may be made by a corporation or an employer. Contributions made by an
employer to the account of its employee or of a family member of the employee are subject to
the rules governing taxation of compensation.
19. ABLE contributions may be made in the form of cash, check, money order, credit card payment
and/or after-tax payroll deductions.
20. Contributions made by the ABLE account owner under the Tax Cuts and Jobs Act of 2017 (ABL
E
to
Work) do not have to be made from compensation income, but must be contributed by the
account owner, up to their earnings or the previous year’s federal poverty rate (FPL) for the
p
erson’s state of residence.
DISTRIBUTIONS / QUALIFIED DISABILITY EXPENSES (QDES)
21. Distributions from an ABLE account for coverage of qualified disability expenses are not
included in a designated beneficiary’s gross income.
22. The definition of “qualified disability expenses” does not require an expense “only benefit the
individual.” The IRS declines to provide an exhaustive list of expenses that are qualified. It also
declines to provide a list of expenses that will not satisfy the standard. Whether or not an
expense is a QDE depends upon each ABLE account owner’s unique circumstances and whether
the expense is for maintaining or improving the health, independence or qualify of life of the
ABLE account owner.
23. QDEs paid by the 60
th
day, following the end of the calendar year, will be treated as if they had
been paid in the immediately preceding taxable year.
24. States are not required to establish safeguards to distinguish between distributions used for the
payment of qualified disability expenses and unqualified distributions. The account owner is not
required to report withdrawals to the ABLE program or IRS, however, the distribution must be
categorized in order to determine federal income tax obligations.
25. Moving funds from an ABLE investment fund into an ABLE cash fund to process a distribution is
not a change in investment direction.
ABLE ACCOUNT ROLLOVERS
26. The annual contribution limit on an ABLE account does not include ABLE plan to ABLE plan
transfers or rollovers.
27. The ability to rollover a 529 college savings account into a 529A (ABLE) account will sunset in
2026. From that point forward, this change will impact those who have a 529 college savings
account who acquire a disability prior to age 26 that prevents them from using those funds to go
to college/trade programs. Having assets (e.g., a 529 college savings account) in their name may
also impact ability to qualify for public means-tested benefits.
ABLE National Resource Center
1667 K STREET NW, SUITE 480 | WASHINGTON D.C., 20006
PHONE: (202) 296.2040 | FAX: (202) 296.2047
28. The IRS Code does not provide for a tax-free transfer from an ABLE account to a qualified tuition
account under Section 529 because such a distribution would not be for a qualified disability
expense.
ABLE ACCOUNT OWNER’S DEATH & TREATMENT OF REMAINING FUNDS
29. Upon the death of an ABLE account owner, the ABLE account is subject to federal estate tax as
well as payment of outstanding QDEs and any state claim.
30. The state is not required to file a Medicaid reimbursement claim and there is no state ABLE plan
obligation to determine whether claims could be filed by multiple states.
31. A successor designated beneficiary may be named during the lifetime of the ABLE account
o
wner that will take effect upon the death of the designated ABLE account owner. Assets in the
ABLE account are payable to the estate if no beneficiary is named.
GIFT AND TRANSFER TAX CONSEQUENCES
32. Neither gift tax nor generation skipping transfer tax applies to transfers of an ABLE account by
rollover, program to program transfer or change in beneficiary to another eligible individual who
is a sibling or step-sibling of the beneficiary.
READ THE FULL FINAL IR
S ABLE RULE:
federalregister.gov/documents/2020/11/19/2020-22144/
guidance-under-section-529a-qualified-able-programs
