On Wednesday, the U.S. House of Representatives will consider H.R. 647, the ABLE (Achieving a Better Life Experience) Act of 2014. ATR is supportive of this legislation and urges Members to vote for it.
H.R. 647 is a net tax cut.
At its heart, the ABLE Act creates a brand new tax-advantaged savings account vehicle. A new form of 529 college savings plan is authorized under tax law. They would work much like existing 529 plans: money goes in after tax, and grows tax free for the intended purpose of the account.
The difference is that ABLE accounts, unlike 529 plans, are not intended for college savings. Rather, ABLE accounts would be used to help pay for the disability expenses of those classified as disabled before age 26. Qualified expenses include: education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses.
The balance in an ABLE account cannot exceed $100,000 for practical purposes. Annual contributions are limited to the gift tax limit. As a result, these accounts are a modest aid to the target population of the bill, and are not intended as a significant wealth accumulation vehicle.
Put simply, an ABLE account is to a child with a disability what a 529 plan is to a child who has college in his future. Not only is an ABLE account a good way to increase tax-free savings for families (always a good thing), it’s a compassionate way for families with special needs children to save for the needs of the most vulnerable.