The 13 speakers who testified at the October 14 IRS hearing on the proposed regulations under Code Sec. 529A (NPRM REG-102837-15; TAXDAY 2015/06/22, I.1) generally expressed support for the IRS’s proposed plan for implementing the new tax-favored savings program for eligible disabled individuals. They made several suggestions, however, for how to improve the program’s effectiveness and decrease the burden on beneficiaries, financial institutions, and states.
Congress enacted the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act) on December 19, 2014, as part of the Tax Increase Prevention Act of 2014 (P.L. 113-295). The ABLE Act authorizes each state to create and maintain a new savings program, similar to the college tuition plan program under Code Sec. 529, through which contributions may be made to the account of an eligible disabled individual. Contributions to the account would generally be nontaxable gifts to the account beneficiary. The eligible disabled individual may then withdraw the earnings tax-free to pay for his or her qualified disability expenses.
One of the prerequisites for establishing an ABLE account is that the individual setting up the account must provide a disability certification to the ABLE program. To maintain the account, beneficiaries must periodically recertify that they remain qualified disabled individuals. The ABLE program is authorized under the proposed regulations to set the requirements for frequency of recertification. In doing so, they are allowed to take into consideration the permanence of the impairment, among other factors.
Sandra Madden, speaking on behalf of Ascensus College Savings, stated that these provisions within the proposed regulations would, in practice, shift the burden for making determinations of ABLE account eligibility onto the ABLE programs. These programs lack the requisite expertise and knowledge to interpret physician diagnoses, and acquiring such knowledge would introduce high costs into plan administration.
Kathleen McGrath, representing the College Savings Plan Network, added that this certification requirement impeded the ability of disabled individuals to sign up for ABLE accounts. Most accounts are opened online, she explained, and requiring the submission of documents online would create an unnecessary burden. “The more things that are required to open an account, the less likely individuals are to open one,” she said. “Every single requirement becomes another barrier to get over.”
Marty Ford, senior executive officer, The Arc of the United States, noted that allowing states to set the recertification requirements could result in widely divergent ABLE programs in terms of ease or difficulty of establishing eligibility.
Many speakers from ABLE programs supported the idea of self-certification made by plan participants under the penalty of perjury. On the other hand, Scott Gates, director for the Learning Quest® 529 Education Savings Program in Kansas, agreed that the burden of determining eligibility should not fall on the programs, but questioned whether these certifications would, in fact, be scrutinized by the Treasury or the IRS. He stated that lack of proper scrutiny could open the door for fraud.
According to Sara Weir and Sara Wolff, both representing the National Down Syndrome Society, certain conditions, such as Down Syndrome, were permanent and, therefore, merited a more streamlined recertification process. Weir also stated that the IRS, account beneficiaries and ABLE programs could all benefit from a certification form that includes a check box and signature line for a physician to certify that the condition or impairment is not likely to improve, and that recertification should be waived for a period of five years.
One ABLE Account
Although the statutory language states that an individual may have only one ABLE account, several speakers advocated for the ability of account owners to establish subaccounts within one ABLE account. Among other reasons, McGrath suggested that potential contributors might be deterred from contributing to an account managed by someone to whom they objected (for example, in the case of a divorced parent wanting to make a contribution to his or her child’s ABLE account, the signature authority for which is managed by the ex-spouse).
State of Residence
The proposed regulations currently require that an ABLE account may only be established under the qualified ABLE program of either the state in which the designated beneficiary is a resident or of another state with which the state of residence has contracted. Several hearing speakers requested that the IRS authorize states without an ABLE program to contract with multiple states with ABLE programs, to provide beneficiaries with as many choices as possible.
Other comments made at the hearing related to the clarification of ABLE account assets as they relate to determinations of eligibility for supplemental Social Security benefits, to the rollover of assets in a 529 plan into an ABLE account once a 529 -plan beneficiary has been certified as a qualified disabled individual, the repayment of ABLE account assets to Medicaid following the death of the beneficiary, and the best method for returning excess contributions to an ABLE account to the contributors, among other issues.
By Jennifer Cordaro, Wolters Kluwer News Staff