Contribution Limits Applicable to ABLE Accounts
| Published date | 10 October 2019 |
| Citation | 84 FR 54529 |
| Record Number | 2019-21477 |
| Section | Proposed rules |
| Court | Internal Revenue Service |
Federal Register, Volume 84 Issue 197 (Thursday, October 10, 2019)
[Federal Register Volume 84, Number 197 (Thursday, October 10, 2019)]
[Proposed Rules]
[Pages 54529-54533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21477]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
RIN 1545-BP10
Contribution Limits Applicable to ABLE Accounts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations related to the
Internal Revenue Code (Code), which allows a State (or its agency or
instrumentality) to establish and maintain a tax-advantaged savings
program under which contributions may be made to an ABLE account for
the purpose of paying for the qualified disability expenses of the
designated beneficiary of the account. The affected Code section was
amended by the Tax Cuts and Jobs Act, signed into law on December 22,
2017. The Tax Cuts and Jobs Act allows certain designated beneficiaries
to contribute a limited amount of compensation income to their own ABLE
accounts.
DATES: Comments must be received by January 8, 2020.
ADDRESSES: Submit electronic submissions via the Federal eRulemaking
Portal at www.regulations.gov (indicate IRS and REG-128246-18) by
following the online instructions for submitting comments. Once
submitted to the Federal eRulemaking Portal at www.regulations.gov
comments cannot be edited or withdrawn. The Department of the Treasury
(Treasury Department) and the IRS will publish for public availability
any comment received to its public docket, whether submitted
electronically or in hard copy. Send hard copy submissions to:
CC:PA:LPD:PR (REG-128246-18), Room 5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG-128246-18), Courier's Desk, Internal
Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224.
[[Page 54530]]
FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations,
Julia Parnell, (202) 317-4086; concerning submissions of comments and
requests for a public hearing, Regina Johnson at email address
[email protected] and (202) 317-6901 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION: This document contains proposed regulations
related to section 529A of the Internal Revenue Code (Code), which
allows a State (or its agency or instrumentality) to establish and
maintain a tax-advantaged savings program under which contributions may
be made to an ABLE account for the purpose of paying for the qualified
disability expenses of the designated beneficiary of the account.
Section 529A was amended by the Tax Cuts and Jobs Act, Public Law 115-
97, 131 Stat. 2054, (2017) (2017 Act), signed into law on December 22,
2017. The 2017 Act allows certain designated beneficiaries to
contribute a limited amount of compensation income to their own ABLE
accounts.
Background
1. The ABLE Act
The Stephen Beck, Jr., Achieving a Better Life Experience Act of
2014 (the ``ABLE Act'') was enacted on December 19, 2014, as part of
the Tax Increase Prevention Act of 2014, Public Law 113-295, 128 Stat.
4010, (2014). The ABLE Act added section 529A to the Code. Section 529A
allows a State (or its agency or instrumentality) to establish and
maintain a tax-advantaged savings program under which contributions may
be made to an ABLE account for the purpose of paying for the qualified
disability expenses of the designated beneficiary of the account.
Section 529A was amended by the 2017 Act.
Prior to its amendment by the 2017 Act, section 529A(b)(2) stated
that a program shall not be treated as a qualified ABLE program unless
it provides that no contribution will be accepted unless it is in cash,
or if the contribution (other than a rollover contribution described in
section 529A(c)(1)(C)) would result in aggregate contributions from all
contributors in excess of the amount of the section 2503(b) gift tax
exclusion for the calendar year in which the designated beneficiary's
taxable year begins. Under section 529A(b)(2), rules similar to the
rules of section 408(d)(4) apply to permit the return of excess
contributions (with any attributable net income) on or before the due
date (including extensions) of the designated beneficiary's income tax
return. In addition, under section 529A(b)(6), a qualified ABLE program
must provide adequate safeguards to ensure that total contributions do
not exceed the State's limit for aggregate contributions under its
qualified tuition program as described in section 529(b)(6). A
qualified tuition program under section 529 is a program established by
a State (or its agency or instrumentality) that permits a person to
prepay or contribute to a tax-favored savings account for a designated
beneficiary's qualified higher education expenses (QHEEs) or a program
established by an eligible educational institution that permits a
person to prepay a designated beneficiary's QHEEs.
2. Prior Rulemaking and Statutory Change
On June 22, 2015, the Treasury Department and the IRS published a
Notice of Proposed Rulemaking (REG-102837-15) in the Federal Register
(80 FR 35602) (the 2015 Proposed Regulations). More than 200 written
comments were received in response to the 2015 Proposed Regulations and
a public hearing was held on October 14, 2015.\1\ In addition to these
comments, several commenters asked the Treasury Department and the IRS
to issue interim guidance to address three particular issues so that
these programs could be established before the issuance of final
regulations. In order to prevent a delay in the creation of ABLE
programs, the Treasury Department and the IRS issued Notice 2015-81,
2015-49 I.R.B. 784 (Dec. 7, 2015), which describes how the Treasury
Department and the IRS intend to revise three particular provisions of
the proposed regulations under section 529A when those regulations are
finalized.
---------------------------------------------------------------------------
\1\ Comments related to the 2015 Proposed Regulations will be
considered prior to finalizing them, which the Treasury Department
and the IRS expect to occur in conjunction with the finalization of
these proposed regulations.
---------------------------------------------------------------------------
Since the issuance of the 2015 Proposed Regulations and the Notice,
two statutes have been enacted that amended one or more provisions of
section 529A. On December 18, 2015, section 303 of the Protecting
Americans from Tax Hikes Act of 2015 (the PATH Act), was enacted as
part of the Consolidated Appropriations Act, Public Law 114-113, 129
Stat. 2242, (2016). The PATH Act amended section 529A(b)(1), effective
for taxable years beginning after December 31, 2014, by removing the
requirement that a State's qualified ABLE program allow the
establishment of an ABLE account only for a designated beneficiary who
is a resident of that State or of a contracting State. Due to this
amendment, the Treasury Department and the IRS intend to remove
references to the residency requirement in the proposed regulations
under section 529A when those regulations are finalized. The other
statutory change was made in the 2017 Act as described in these
proposed regulations.
3. The 2017 Act
The 2017 Act amended section 529A(b)(2)(B) to allow an employed
designated beneficiary described in new section 529A(b)(7) to
contribute, prior to January 1, 2026, an additional amount in excess of
the limit in section 529A(b)(2)(B)(i) (the annual gift tax exclusion
amount in section 2503(b), formerly set forth in section
529A(b)(2)(B)). This additional permissible contribution is subject to
its own limit as described in section 529A(b)(2)(B)(ii). Specifically,
this additional contributed amount may not exceed the lesser of (i) the
designated beneficiary's compensation as defined by section 219(f)(1)
for the taxable year, or (ii) an amount equal to the poverty line for a
one-person household for the calendar year preceding the calendar year
in which the taxable year begins. The 2017 Act also amended the section
529A(b)(2) flush language to require the designated beneficiary, or a
person acting on behalf of the designated beneficiary, to maintain
adequate records to ensure, and to be responsible for ensuring, that
the requirements of section 529A(b)(2)(B)(ii) are met.
New section 529A(b)(7)(A) identifies a designated beneficiary
eligible to make this additional contribution as one who is an employee
(including a self-employed individual) with respect to whom there has
been no contribution made for the taxable year to: a defined
contribution plan meeting the requirements of sections 401(a) or
403(a); an annuity contract described in section 403(b); or an eligible
deferred contribution plan under section 457(b). Section 529A(b)(7)(B)
defines the term ``poverty line'' as having the meaning provided in
section 673 of the Community Services Block Grant Act (42 U.S.C. 9902).
The 2017 Act also amended section 529 to allow, before January 1,
2026, a limited amount to be rolled over to an ABLE account from the
designated beneficiary's own section 529 qualified tuition program
(QTP) account or from the QTP account of certain family members. The
2017 Act added section 529(c)(3)(C)(i)(III), which provides that a
distribution from a QTP made after December 22, 2017, and before
January 1, 2026, is not subject to income tax if,
[[Page 54531]]
within 60 days of the distribution, it is transferred to an ABLE
account of the designated beneficiary or a member of the family of the
designated beneficiary. Under section 529(c)(3)(C)(i), the amount of
any rollover to an ABLE account is limited to the amount that, when
added to all other contributions made to the ABLE account for the
taxable year, does not exceed the contribution limit for the ABLE
account under section 529A(b)(2)(B)(i), that is, the annual gift tax
exclusion amount under section 2503(b). This limited rollover is
described in more detail in Notice 2018-58, 2018-33 I.R.B. 305 (Aug.
13, 2018).
4. Notice 2018-62
To address the 2017 Act modifications to section 529A, the Treasury
Department and the IRS published Notice 2018-62, 2018-34 I.R.B. 316
(Aug. 20, 2018), which announces the intent of the Treasury Department
and the IRS to issue proposed regulations to implement these changes,
and describes the anticipated rules to implement the statutory changes.
No comments were received in response to the Notice. These proposed
regulations incorporate, without substantive change, the anticipated
rules described in that Notice.
Explanation of Provisions
1. Additional Contributions
The 2017 Act amended section 529A(b)(2)(B) to permit an employed or
self-employed designated beneficiary described in section 529A(b)(7) to
contribute to his or her ABLE account the lesser of the designated
beneficiary's compensation for the taxable 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
taxable year begins. These proposed regulations confirm that the
employed designated beneficiary, or the person acting on his or her
behalf, is solely responsible for ensuring that the requirements in
section 529A(b)(2)(B)(ii) are met and for maintaining adequate records
for that purpose. In addition, to minimize burdens for the designated
beneficiary and the qualified ABLE program, these proposed regulations
provide that ABLE programs may allow a designated beneficiary or the
person acting on his or her behalf to certify, under penalties of
perjury, that he or she is a designated beneficiary described in
section 529A(b)(7) and that his or her contributions of compensation do
not exceed the limit set forth in section 529A(b)(2)(B)(ii).
2. Poverty Line
Section 529A(b)(7)(B) provides that the term poverty line referred
to in section 529A(b)(2)(B)(ii) has the same meaning given to that term
by section 673 of the Community Services Block Grant Act (42 U.S.C.
9902). These proposed regulations clarify that the poverty line in
section 529A(b)(7)(B) is to be determined by using the poverty
guidelines updated periodically in the Federal Register by the U.S.
Department of Health and Human Services under the authority of 42
U.S.C. 9902(2). Those guidelines vary based on locality. Specifically,
there are separate guidelines for (1) the contiguous 48 states and the
District of Columbia, (2) Alaska, and (3) Hawaii. Because the Treasury
Department and the IRS have concluded that the poverty guideline that
most closely reflects the employed designated beneficiary's cost of
living is the most relevant for determining the contribution limit,
these proposed regulations provide that a designated beneficiary's
contribution limit is to be determined using the poverty guideline
applicable in the state of the designated beneficiary's residence.
3. Return of Excess Contributions
Because section 529A(b)(2) provides that rules similar to those set
forth in section 408(d)(4) regarding the return of excess contributions
to an individual retirement account or annuity apply to ABLE accounts,
these proposed regulations provide that a qualified ABLE program must
return any contributions of the designated beneficiary's compensation
in excess of the limit in section 529A(b)(2)(B)(ii) to the designated
beneficiary.
Consistent with section 529A(b)(2), these proposed regulations
provide that it will be 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 such compensation income. Such returns of excess compensation
contributions must be received by 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 contributions were made. A failure to return excess
contributions within this time period will result in the imposition on
the designated beneficiary of a 6 percent excise tax under section
4973(a)(6) on the amount of excess compensation contributions.
Additionally, in order to minimize administrative burdens for the
designated beneficiary and the qualified ABLE program, for purposes of
ensuring that the limit on contributions made under section
529A(b)(2)(B)(ii) is not exceeded, the qualified ABLE program may rely
on self-certifications, made under penalties of perjury, of the
designated beneficiary or the person acting on the designated
beneficiary's behalf.
Proposed Effective/Applicability Date
These regulations are proposed to apply to taxable years beginning
after the date of publication of the Treasury decision adopting these
rules as final regulations in the Federal Register. Until the issuance
of final regulations, taxpayers and qualified ABLE programs may rely on
these proposed regulations.
Special Analyses
This regulation is not subject to review under section 6(b) of
Executive Order 12866 pursuant to the Memorandum of Agreement (April
11, 2018) between the Department of the Treasury and the Office of
Management and Budget regarding review of tax regulations.
Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that the collection of information in these
regulations will not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that these proposed regulations will not impact a substantial
number of small entities. These regulations primarily affect states and
individuals and therefore will not have a significant economic impact
on a substantial number of small entities. Pursuant to section 7805(f)
of the Code, these proposed regulations will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on their impact on small business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are timely submitted
to the IRS as prescribed in this preamble under the ADDRESSES heading.
The Treasury Department and the IRS request comments on all aspects of
these proposed rules. All comments will be available at
www.regulations.gov or upon request. A public hearing will be scheduled
if requested in writing by any
[[Page 54532]]
person that timely submits written or electronic comments. If a public
hearing is scheduled, notice of the date, time, and place for the
hearing will be published in the Federal Register.
Statement of Availability of IRS Documents
Notices 2015-81, 2018-58 and 2018-62 are published in the Internal
Revenue Bulletin and are available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at http://www.irs.gov.
Drafting Information
The principal author of these regulations is Julia Parnell, Office
of Associate Chief Counsel (Employee Benefits, Exempt Organizations,
and Employment Taxes). However, other personnel from the IRS and the
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry for Sec. 1.529A-8 in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.529A-8 also issued under 26 U.S.C. 529A(g).
* * * * *
0
Par. 2. Section 1.529A-0, as proposed to be added at 80 FR 35602, June
22, 2015, is further amended by adding an entry for Sec. 1.529A-8 in
numerical order to read as follows:
Sec. 1.529A-0 Table of contents.
* * * * *
Sec. 1.529A-8 Additional contributions to ABLE accounts made by an
employed designated beneficiary.
(a) Additional contributions to ABLE accounts made by an employed
designated beneficiary.
(1) In general.
(2) Amount of additional contribution.
(b) Additional definitions.
(1) Employed designated beneficiary.
(2) Applicable poverty line.
(3) Excess compensation contribution.
(c) Example.
(d) Responsibility for ensuring contribution limit is met.
(e) Return of excess compensation contributions.
(f) Applicability date.
0
Par.3. Section 1.529A-1, as proposed to be added at 80 FR 35602, June
22, 2015, is further amended by revising paragraph (b)(3) to read as
follows:
Sec. 1.529A-1 Exempt status of qualified ABLE program and
definitions.
* * * * *
(b) * * *
(3) Contribution means any payment directly allocated to an ABLE
account for the benefit of the designated beneficiary, including
amounts transferred from a qualified tuition program under section 529
after December 22, 2017 and before January 1, 2026.
* * * * *
0
Par. 4. Section 1.529A-8 is added to read as follows:
Sec. 1.529A-8 Additional contributions to ABLE accounts made by an
employed designated beneficiary.
(a) Additional contributions by an employed designated
beneficiary--(1) In general. An employed designated beneficiary defined
in paragraph (b)(1) of this section may contribute amounts up to the
limit specified in paragraph (a)(2) of this section in addition to the
annual amount described in section 529A(b)(2)(B)(i).
(2) Amount of additional permissible contribution. Any additional
contribution made by the designated beneficiary pursuant to this
section is limited to the lesser of--
(i) The designated beneficiary's compensation as defined by section
219(f)(1) for the taxable year; or
(ii) An amount equal to the applicable poverty line, as defined in
paragraph (b)(2) of this section, for a one-person household for the
calendar year preceding the calendar year in which the designated
beneficiary's taxable year begins.
(b) Additional definitions. In addition to the definitions in Sec.
1.529A-1(b), the following definitions also apply for the purposes of
this section--
(1) Employed designated beneficiary means a designated beneficiary
who is an employee (including an employee within the meaning of section
401(c)), with respect to whom no contribution is made for the taxable
year to--
(i) A defined contribution plan (within the meaning of section
414(i)) with respect to which the requirements of sections 401(a) or
403(a) are met;
(ii) An annuity contract described in section 403(b); and
(iii) An eligible deferred compensation plan described in section
457(b).
(2) Applicable poverty line means the amount provided in the
poverty guidelines updated periodically in the Federal Register by the
U.S. Department of Health and Human Services under the authority of 42
U.S.C. 9902(2) for the State of residence of the employed designated
beneficiary. If the designated beneficiary lives in more than one state
during the taxable year, the applicable poverty line is the poverty
line for the state in which the designated beneficiary resided longer
than in any other state during that year.
(3) Excess compensation contribution means the amount by which the
amount contributed during the taxable year of an employed designated
beneficiary to the designated beneficiary's ABLE account exceeds the
limit in effect under section 529A(b)(2)(B)(ii) and paragraph (a)(2) of
this section for the calendar year in which that taxable year of the
employed designated beneficiary begins.
(c) Example. The following example illustrates the principles of
paragraphs (a)(2) and (b)(2) of this section. In 2019, A, the
designated beneficiary of an ABLE account, lives in Hawaii. A's
compensation, as defined by section 219(f)(1), for 2019 is $20,000. The
poverty line for a one-person household in Hawaii was $13,960 in 2018.
Because A's compensation exceeded the applicable poverty line amount,
A's additional permissible contribution in 2019 is limited to $13,960,
the amount of the 2018 applicable poverty line.
(d) Responsibility for ensuring contribution limit is met. (1) The
employed designated beneficiary, or the person acting on his or her
behalf, is solely responsible for ensuring that the requirements in
section 529A(b)(2)(B)(ii) and paragraph (a)(2) of this section are met
and for maintaining adequate records for that purpose.
(2) A qualified ABLE program may allow a designated beneficiary (or
the person acting on his or her behalf) to certify, under penalties of
perjury, and in the manner specified by the qualified ABLE program
that--
(i) The designated beneficiary is an employed designated
beneficiary; and
(ii) The designated beneficiary's contributions of compensation are
not excess compensation contributions.
(e) Return of excess compensation contributions. If an excess
compensation contribution is deposited into or allocated to the ABLE
account of a designated beneficiary, the qualified ABLE program must
return that excess contribution, including all net income
[[Page 54533]]
attributable to the excess contribution, as determined under the rules
set forth in Sec. 1.408-11 (treating references to an IRA as
references to an ABLE account, and references to returned contributions
under section 408(d)(4) as references to excess compensation
contributions), to the employed designated beneficiary. The employed
designated beneficiary, or the person acting on the employed designated
beneficiary's behalf, is responsible for identifying any excess
compensation contribution and for requesting the return of the excess
compensation contribution. The excess compensation contribution, if
requested, must be received by the employed designated beneficiary on
or before the due date (including extensions) of the Federal income tax
return of the employed designated beneficiary for the taxable year in
which the excess compensation contribution is made.
(f) Applicability date. The rules of this section apply to taxable
years beginning after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE
Federal Register].
Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2019-21477 Filed 10-9-19; 8:45 am]
BILLING CODE 4830-01-P
