The Achieving a Better Life Experience Act was signed into federal law at the end of 2014, and Arizona’s versions, HB 2388, was signed into law by the Governor on May 12, 2016, and will became effective on August 6, 2016. What does this legislation mean for people with disabilities, and for their families? How will you be able to use the accounts authorized by the ABLE Act?
The ABLE Act is loosely connected to ection 529 of the Internal Revenue Code. You might recognize that number- the prior law created very popular accounts for prepaid tuition. There is lots of information about 529 Plans, including the popular “Saving for College websight. To better understand ABLE, it might make sense to first describe how 529 plans work.
There are dozens of 529 Plans available. Almost every state has adopted at least one 529 Plan (some states have more than one). They often look very much like mutual funds; you put your money into the account, it is managed by the administrator, and it grows along with the market ( or the segment of the market utilized by your particular plan).
You can invest your money in a 529 Plan set up by a state other than yours, or where your prospective student lives. Not every state’s plan allows out- of-state investments, but most do. There are also “Prepaid Tuition” plans available in many sates; they are just what the name implies, though usually the funds can be used for other colleg when the time comes (though
there may be incentives to keep the money, and the student, at the predetermined college). You can set up a 529 Plan for, say, your child- and both sets of grandparents can set up separate accounts for the same student. The multiple plans for a given child can be different states, The maximum asset limit is set in each plan; if you make more than a $14,000 contribution to a plan for a given student in one year, you may have to file a federal gift tax return.
If you do set up a 529 Plan for a child or grandchild, and that prospective student dies, decides not to go to college, or gets a really good scholarship, you can change your beneficiary of your plan to another family member. You keep pretty impressive control over the plan- and yet it is not considered part of your estate for federal estate purposes.
Though you do not get any income tax deduction when you do set up a plan, any later withdrawals for qualified education expenses come out of the plan tax-free. That means that no one has to pay the income tax on the interest and investment income over the years the plan is in place, That’s one of the best parts of a 529 Plan.
The new ABLE Accounts will be similar to 529 Plans in a number of ways, but very different in others. In fact the ABLE Act creates a new section, right after Section 529, of the tax code. Its numbered as Section 529A,just to make the connection clearer. Here are some of the highlights of the new Section 529A:
Arizona has enacted legislation implementing ABLE but has not yet established such an account but it is on the horizon. It’s coming! In the meantime, several other states that have ABLE accounts available accept out-of-state beneficiaries. For the up-to-date information, check out the ABLE National Resource Center at the following link: