New Regulations Prevent Creditors From Seizing Federal Benefits
Several federal agencies recently proposed new regulations that will prevent banks from completely freezing bank accounts tha...Read more
After coming under fire from disability rights organizations and financial institutions for issuing unworkable proposed regulations governing ABLE accounts, the IRS has backed off on several of its most unwieldy proposals.
Last year, Congress passed the Achieving a Better Life Experience (ABLE) Act, a bill allowing some people with special needs or their families to establish tax-free savings accounts that would not disqualify them from receiving federal disability benefits. (For more on the pros and cons of ABLE accounts, click here.) The IRS subsequently released proposed ABLE regulations that were considered impractical by many in the disability rights community. In particular, the regulations required the financial institution housing the account to collect the Social Security Number or Taxpayer ID number of every individual or entity that contributed to a beneficiary's ABLE account, mandated complicated reporting of all distributions from an account and forced a beneficiary to include a doctor's certification of disability when she established an ABLE account.
In response to complaints and comments submitted from the general public, the IRS has issued interim guidance dialing back some of the harshest ABLE regulations. According to the IRS, the final regulations will not force the financial institution to collect a taxpayer ID from every person contributing to an ABLE account, so long as the institution has safeguards in place to ensure that the accounts will not be overfunded. The complicated reporting requirements for distributions have been moved away from the financial institution; now the ABLE account beneficiary will have to show that the funds were used for qualified disability expenses.
One of the most contentious regulations, the doctor's note, has also been altered. Although ABLE account beneficiaries still need to get a doctor's diagnosis of disability, they are not required to share it with the financial institution or the IRS. Instead, the beneficiary or his agent must sign a statement under the pains and penalties of perjury stating that he is eligible to open the account and that he is in possession of a doctor's note certifying this.
These clarifications should make it easier for more states to establish ABLE accounts prior to the issuance of final IRS regulations governing the accounts.
For more on whether an ABLE account is right for you or your family member, speak with your special needs planner today.