New Tax-Exempt ABLE Accounts Near Enactment

 

ConsumerDriven Market Report   POLITICS   12/04/2014

 

A new type of tax-exempt spending account is about to be created by Congress and passed the House yesterday on a huge 440-17 bipartisan vote. H.R. 647 would allow for the creation of a new type of tax-favored account—an ABLE account—for the benefit of individuals with disabilities.

Assets in an ABLE account and distributions from the account for qualifying expenses would be disregarded when determining the beneficiary’s eligibility for most federal means-tested benefits. That means the accounts can be used under Medicaid to pay medical costs just like an HSA.

The spending accounts would resemble the qualified tuition programs—often called “529 accounts”—that have been established under that section of the tax code since 1996. But they are actually more like health savings accounts in that they will be used heavily to pay for medical care for the disabled, which has been exploding in recent years. Also, many of the disabled are veterans or Medicaid recipients who can now use their accounts (and cards) to pay out-of-pocket costs.

Earnings on an ABLE account would generally not be included in the taxable income of the contributor to the account or the designated beneficiary; because earnings on assets set aside to fund expenses of such beneficiaries would generally be taxed under current law, the legislation would reduce tax revenues. Moreover, assets in an ABLE account and distributions from the account for qualified disability expenses would be disregarded when determining the designated beneficiary’s eligibility for most federal means-tested benefits. Thus, the legislation would increase the number of beneficiaries of means-tested programs and federal spending from such programs.

© Copyright 2014 Interpro Publications Inc.  This article may be forwarded without permission.
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