Congress Creates a New Savings Account

By Andrew Remo • December 22, 2014 • 0 Comments
Largely overlooked in the flurry of lame duck activity by Congress is a bill that creates a new kind of savings account for those with disabilities.

Congress overwhelmingly passed bipartisan legislation during its lame duck session that would give states the ability to create a new tax-advantaged savings program for families who have severely disabled individuals. The House of Representatives passed the bill separately on Dec. 3, 2014, attached it to a larger tax bill, and sent the combined package to the Senate, where, on Dec. 16, the combined package was passed and signed into law by President Obama on Dec. 19.

The bill, named the Achieving a Better Life Experience (ABLE) Act of 2014 (H.R. 647), authorizes the creation of “ABLE accounts” to be used as the savings vehicle in order to encourage families to save private funds to support individuals with disabilities. These savings are envisioned to supplement benefits to these individuals — and not to replace benefits already provided through private insurance, Medicaid or Social Security’s supplemental security income (SSI) program. To that end, the first $100,000 in ABLE accounts is exempt from being means-tested in order to allow individuals to continue to be eligible for Medicaid and SSI.

The rules and structure for these “ABLE accounts” is loosely based upon 529 college savings plans. Eligible individuals would be limited to one ABLE account, but contributions into these accounts can be made by any person. The contributions are not tax-deductible, and the total annual contributions are limited to the gift tax exclusion amount ($14,000 for 2014, with indexing), though income earned in the accounts would not be taxed.

Distributions from the account to an eligible individual for qualified expenses will not be taxed, although distributions for non-qualified expenses would be subject to income tax, plus a 10% penalty. Upon the death of an eligible individual, amounts remaining in the account would go to the deceased’s estate or designated beneficiary and be subject to income tax. The $2.1 billion cost of this legislation is offset in large part by revenue raisers affecting Medicare beneficiaries.

The success of this legislation capped off what became a surprisingly productive lame duck session of Congress. In the two months since the November mid-term elections, Congress passed a major federal government funding bill, legislation that extends expired tax provisions for one year, and an annual defense policy bill; it also confirmed 79 of President Obama’s nominations (including 18 district court judges). The only notable legislative failure was the inability of Congress to reauthorize bipartisan terrorism risk insurance legislation. Could this recent bout of legislative activity portend a more productive Congress in 2015?

Andrew Remo is ASPPA’s Congressional Affairs Manager.