On Oct. 1, the IRS released final regulations for Achieving a Better Life Experience (ABLE) accounts, which let people with disabilities—and others on their behalf—save for disability-related expenses in tax-advantaged accounts.
More employers may now offer ABLE accounts as a workplace benefit, so it's fitting that the regulations were issued at the start of National Disability Employment Awareness Month 2020.
The regulations finalize two previously issued proposed rules, the first published in 2015, a year after the ABLE Act became law, and the second published in 2019, in response to the Tax Cuts and Jobs Act, which made significant changes to ABLE accounts. Eligible individuals can now put more money into an ABLE account, and contributions made to ABLE accounts by low- and moderate-income workers may qualify for the Saver's Credit.
What ABLE Accounts Do
The ABLE Act of 2014 allowed states to create tax-advantaged savings programs for eligible people with disabilities, under Section 529A of the tax code.
"ABLE accounts are state-sponsored, tax-deferred accounts under the same tax code as 529 education plans. However, instead of being strictly for higher education, they can be used for nearly anything related to quality of life for a person with a disability," according to Voya, a financial services firm, which posted an infographic: ABLE Accounts at a Glance.
Voya explains that:
- Eligibility is limited to those who have a significant disability with an onset before turning 26 years old. As long as the disability began before the age of 26, an ABLE account can be opened at any time.
- Though contributions are not deductible, distributions, including earnings, are tax-free to the account holder (also called the "designated beneficiary") if used to pay for qualified disability expenses.
- These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services, and other disability-related expenses.
Plans are available in most states, and no matter where someone resides, they can open an ABLE account in any state that accepts outside residents into their program. Some states have made contributions deductible from state income taxes.
"As a full-time employee with an ABLE account, one of the most attractive advantages that my state, Mississippi, provides to state residents, is that contributions to an ABLE account are tax- deductible," wrote Pshon Barrett, an attorney who is blind.
ABLE Accounts as an Employee Benefit
Employers can offer ABLE account contributions and support, according to the nonprofit ABLE National Resource Center (ABLE NRC) in Washington, D.C., a nonprofit managed by the National Disability Institute.
"Disability-related expenses can lead to financial stress," said Miranda Kennedy, director of the ABLE NRC. "Savings and contributions made to an ABLE account by the account owner, their family, friends, employer or other sources can be used for emergencies or to support education and the owner's future retirement," in addition to being used for qualified disability expenses and expenses related to the COVID-19 pandemic, she noted.
The ABLE NRC's website further explains, "An ABLE account can be used to support your employees' ability to work and to increase their productivity, which results in a diverse, valued and productive workforce." Some points to keep in mind include:
- Annual deposits to ABLE accounts are capped at the value of the gift tax exclusion for any given year, currently $15,000 annually. Employers, family members, friends and others can contribute up to an annual calendar limit to help ABLE account holders with the extra costs associated with disabilities.
- If a disabled employee has not contributed to an employer-sponsored retirement account during the year, then the gross wages the employee earns (up to $12,490 for the contiguous states, $15,600 for Alaska and $14,380 for Hawaii residents in 2020) can be contributed to an ABLE account, in addition to contributions from others.
Now, under the final IRS rules, people with disabilities who are employed can deposit their earnings in ABLE accounts above and beyond the existing contribution cap for the year. These individuals can save whatever money they earn in their ABLE account up to the value of the poverty line in the state where they live.
The new rules also allow eligible individuals to roll money from qualified tuition programs (Section 529 plans) into ABLE accounts, and contributions made to ABLE accounts by low- and moderate-income workers may now qualify for the Saver's Credit, which can reduce their tax bill.
"Employees can conveniently direct contributions from payroll to a desired 529 ABLE [account]," ABLE NRC pointed out.
An employer also has the option to contribute or to match an employee's contribution.
According to Voya, "ABLE accounts are a relatively new development but are gaining traction as an option for parents to save for their children with special needs or disabilities. But, in the workplace, ABLE can be a viable complement to an employer-sponsored retirement plan for employers who want to be inclusive of people with disabilities and caregivers."
Steps for Employers
Voya suggests three steps employers can take to offer ABLE account support to eligible employees:
- Offer education about ABLE options and help with access to a direct ABLE program.
- Help employees with enrollment as well as allow for payroll deduction and direct deposit to facilitate saving.
- Offer a matching contribution to ABLE accounts, which can help bridge the gap between the benefits received by those participating in defined contribution retirement plans and those who might choose an ABLE account instead.
"Employers should consider how to incorporate ABLE [accounts] into their benefits programs in order to help attract and retain quality employees," Voya recommended. "In doing so, they can make progress in financial inclusion and help all employees save for their own financial goals."
Wrote Barrett, "During these times of economic and job insecurity, caused by the health crisis of COVID-19 … people with disabilities can use ABLE funds to pay for basic living expenses." She encouraged "ABLE account holders and potential account holders to promote this benefit and take full advantage of what it has to offer."
[SHRM members-only toolkit: Managing Disability Benefits]
Exceptions to Government Means-Testing
One criteria for being a designated beneficiary of an ABLE account is eligibility for Supplemental Security Income (SSI), based on disability or blindness that began before age 26.
Although eligibility in SSI and other federally funded programs for people with disabilities is based on having limited assets, the funds in an ABLE account are not counted by Medicaid and the Supplemental Nutrition Assistance Program (SNAP) toward asset limits, and SSI does not count up to $100,000 in an ABLE account toward its eligibility limit.
According to Voya, "Employees with disabilities or special needs often opt out of valuable employer-sponsored benefits—including 401(k) and 403(b) plans—to maintain government benefit eligibility."
Because ABLE accounts are still relatively new, there's a need to educate employees who might benefit from saving in an ABLE account, the firm noted, given that "individuals with disabilities are accustomed to strictly adhering to the asset limitation and [may be] worried about saving"—even though ABLE accounts are designed to allow them to do so.
[SHRM members-only express request: Creating a Disability-Friendly Workplace]