The Achieving a Better Life Experience (ABLE) Act (“Division B” of the Tax Increase Prevention Act of 2014 (HR 5771)) creates tax-favored savings accounts for individuals with disabilities for tax years beginning after December 31, 2014. The ABLE Act authorizes states to create an ABLE Program (similar to Code Sec. 529 college savings programs).
Qualified distributions include amounts used to cover medical expenses as well as costs of education, transportation and housing. Distributions used for nonqualified expenses would be subject to income tax on the portion of the distributions attributable to earnings from the account, plus a 10 percent penalty.
Individuals with disabilities would be limited to one ABLE account; and total annual contributions by all individuals to any one ABLE account could be made up to the gift tax exclusion amount. For 2015, the gift tax exclusion amount is $14,000.
The ABLE Act also authorizes investment direction for Code Sec. 529 plans by an account contributor or designated beneficiary up to two times each year. The change is effective for tax years beginning after December 31, 2014.