The IRS has proposed reliance regs under Code Sec. 529A that provide guidance on the amended contribution limits applicable to ABLE accounts. The contribution limits for ABLE accounts were changed by the Tax Cuts and Jobs Act (TCJA, PL 115-97) to allow certain employed beneficiaries to contribute a limited amount of compensation income to their own ABLE accounts.
Code Sec. 529A was added by The Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (the ABLE Act; PL 113-295). Code Sec. 529A allows a state (or an agency or instrumentality of the state) to establish and maintain a tax-advantaged savings program for the qualified disability expenses of a designated beneficiary of the account (ABLE accounts). Contributions to ABLE accounts were limited and designated beneficiaries could not contribute. (Code Sec. 529A(b)(2)(B), prior to amendment)
Code Sec. 529A was amended by the Tax Cuts and Jobs Act (TCJA, PL 115-97). As amended, Code Sec. 529A(b)(2)(B) permits an eligible employed or self-employed designated beneficiary to contribute to their ABLE account an additional amount that exceeds the limit in Code Sec. 529A(b)(2)(B)(i). This additional amount is limited to the lesser of
- The designated beneficiary’s compensation for the tax year or
- An amount equal to the poverty line for a one-person household for the calendar year preceding the calendar year in which the designated beneficiary’s tax year begins. (Code Sec. 529A(b)(2)(B)(ii))
An eligible designated beneficiary is an employee (including a self-employed individual) with respect to whom there has been no contribution made for the tax year to
- A defined contribution plan meeting the requirements of Code Sec. 401(a) or Code Sec. 403(b);
- An annuity contract described in section 403(b); or
- An eligible deferred contribution plan under Code Sec. 457(b). (Code Sec. 529A(b)(7)(A))
The term “poverty line” referred to in Code Sec. 529A(b)(2)(B)(ii) has the same meaning given to that term by section 673 of the Community Services Block Grant Act (42 USC 9902). (Code Sec. 529A(b)(7)(B))
ABLE accounts are subject to excess contribution rules similar to those for individual retirement accounts or annuities under Code Sec. 408(d)(4). (Code Sec. 529A(b)(2))
In August 2018, the IRS published Notice 2018-62, 2018-34 IRB 316, which announced that the IRS proposed to issue regs to implement the TCJA amendments to Code Sec. 529A and described the anticipated rules.
These proposed regs incorporate, without substantive change, the anticipated rules described in Notice 2018-62. See “Proposed regs will clarify contribution limit for ABLE accounts”.
Additional contributions. The proposed regs confirm that the employed designated beneficiary, or a person acting on their behalf, is solely responsible for ensuring that the requirements in Code Sec. 529A(b)(2)(B)(ii) are met and for maintaining adequate records for that purpose. (Prop Reg §1.529A-8(d)(1))
Poverty line. Under the proposed regs the poverty line in Code Sec. 529A(b)(7)(B) is determined by using the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under 42 USC 9902(2). A designated beneficiary’s contribution limit is determined using the poverty guideline applicable in the designated beneficiary’s state of residence. (Prop Reg §1.529A-8(b)(2))
Return of excess contributions. Consistent with Code Sec. 529A(b)(2), the proposed regs provide that a qualified ABLE program must return to the designated beneficiary any contributions of the designated beneficiary’s compensation that exceed the limit in Code Sec. 529A(b)(2)(B)(ii). (Prop Reg §1.529A-8(e))
An excess compensation contribution should be returned to the employed designated beneficiary on or before the due date (including extensions) of the designated beneficiary’s income tax return for the year in which the excess compensation contribution was made. (Prop Reg §1.529A-8(e))
Under the proposed regs it is the sole responsibility of the designated beneficiary, or the person acting on the designated beneficiary’s behalf) to identify and request the return of any excess contribution of compensation income. (Prop Reg §1.529A-8(e))
The proposed regs allow a qualified ABLE program to rely on a designated beneficiary’s self-certification (or the self-certification of the person acting on the designated beneficiary’s behalf), made under penalties of perjury, that the limit on contributions under Code Sec. 529A(b)(2)(B)(ii) was not exceeded. (Prop Reg §1.529A-8(d)(2))
The proposed regs will apply to tax years beginning after the date final regs are published in the Federal Register. Until the issuance of final regulations, taxpayers and qualified ABLE programs may rely on these proposed regs.
To continue your research on ABLE accounts, see FTC 2d/FIN ¶A-4740 et seq.; United States Tax Reporter ¶529A4.
Subscribe to our Checkpoint Daily Newsstand email to get all the latest tax, accounting, and audit news delivered to your inbox each weekday. It’s free!