ABLE Accounts

(a)

Establishment

(1)

In general

Subchapter F of chapter 1 of the Internal Revenue Code of 1986 (relating to exempt organizations) is amended by inserting after part VIII the following new part:

Savings for individuals with disabilities

Sec. 530A. ABLE Accounts.

530A.

ABLE Accounts

(a)

General rule

An ABLE account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, such account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations). (b)

Definitions and special rules

For purposes of this section— (1)

ABLE accounts

The term ABLE account means a trust created or organized in the United States (and designated as an ABLE account at the time created or organized) exclusively for the purpose of paying qualified disability expenses of an individual who is an individual with a disability and who is the designated beneficiary of the trust, but only if the written governing instrument creating the trust meets the following requirements: (A)No contribution will be accepted— (i)except in the case of rollover contributions described in subsection (c)(4) and sections 223(c)(5)(A)(ii), 408(d)(3)(A)(iii), 529(c)(3)(E), and 530(d)(9), unless it is in cash, (ii)if such contribution would result in aggregate contributions for the taxable year and all preceding taxable years exceeding $500,000, and (iii)after the date on which the account holder attains the age of 65. (B)The trustee is— (i)a bank (as defined in section 408(n)), (ii)the designated beneficiary, (iii)a parent or guardian of the designated beneficiary, or (iv)a third-party appointed by the designated beneficiary or a parent or guardian of the designated beneficiary (including a family member of the designated beneficiary or an organization that administers pooled and special needs trusts) who demonstrates to the satisfaction of the Secretary that the manner in which that person will administer the trust will be consistent with the requirements of this section. (C)No part of the trust assets will be invested in life insurance contracts. (D)The assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund. (E)Except as provided in paragraph (4) or (5) of subsection (c), in the case that the designated beneficiary dies or ceases to be an individual with a disability, all amounts remaining in the trust not in excess of the amount equal to the total medical assistance paid for the designated beneficiary after the establishment of the trust under any State Medicaid plan established under title XIX of the Social Security Act shall be distributed to such State. (2)

Qualified disability expenses

(A)

In general

The term qualified disability expenses means any expenses which— (i)are made for the benefit of an individual with a disability who is a designated beneficiary of the trust, and (ii)approved under regulations established by the Secretary. (B)

Expenses included

The following expenses shall, to the extent provided under regulations established by the Secretary, be qualified disability expenses if made for the benefit of an individual with a disability who is a designated beneficiary of the trust: (i)

Education

Expenses for education, including tuition for preschool thru post-secondary education, books, supplies, and educational materials related to such education, tutors, and special education services. (ii)

Housing

Expenses for housing, including rent, mortgage payments, home improvements and modifications, maintenance and repairs, real property taxes, and utility charges. (iii)

Transportation

Expenses for transportation, including the use of mass transit, the purchase or modification of vehicles, and moving expenses. (iv)

Employment support

Expenses related to obtaining and maintaining employment, including job-related training, assistive technology, and personal assistance supports. (v)

Health, prevention, and wellness

Expenses for the health and wellness, including premiums for health insurance, medical, vision, and dental expenses, habilitation and rehabilitation services, durable medical equipment, therapy, respite care, long term services and supports, and nutritional management. (vi)

Life necessities

Expenses for life necessities, including clothing, activities which are religious, cultural, or recreational, supplies and equipment for personal care, community-based supports, communication services and devices, adaptive equipment, assistive technology, personal assistance supports, financial management and administrative services, expenses for oversight, monitoring, or advocacy, funeral and burial expenses. (vii)

Other approved expenses

Any other expenses which are approved by the Secretary under regulations and consistent with the purposes of this section. (viii)

Assistive technology and personal support services

Expenses for assistive technology and personal support with respect to any item described in clauses (i) through (vii). (3)

Individual with a disability

An individual is an individual with a disability if such individual— (A)would be eligible to receive supplemental security income benefits due to blindness or disability under title XVI of the Social Security Act, or disability benefits under Title II of the Social Security Act, notwithstanding— (i)the income and assets tests and substantial gainful activity test required for eligibility for such benefits, and (ii)whether a determination has been made that such individual is blind or disabled, or (B)is eligible to receive or is deemed to be receiving supplemental security income benefits due to blindness or disability under title XVI of the Social Security Act, or disability benefits under title II of the Social Security Act. (4)

Rules relating to estate and gift tax

Rules similar to the rules of paragraphs (2), (4), and (5) of section 529(c) shall apply for purposes of this section. (5)

Only 1 account per qualified beneficiary

No individual may have more than 1 ABLE account for an individual with a disability. (c)

Tax treatment of distributions

(1)

In general

Except as otherwise provided in this subsection, any amount paid or distributed out of an ABLE account shall be included in gross income by the payee or distributee, as the case may be, for the taxable year in which received in the manner as provided in section 72. (2)

Distributions for benefit of designated beneficiary

(A)

In general

No amount shall be includible in gross income under paragraph (1) if the qualified disability expenses of the designated beneficiary during the taxable year are not less than the aggregate distributions during the taxable year. (B)

Distributions in excess of expenses

If such aggregate distributions exceed such expenses during the taxable year, the amount otherwise includible in gross income under paragraph (1) shall be reduced by the amount which bears the same ratio to the amount which would be includible in gross income under paragraph (1) (without regard to this subparagraph) as the qualified disability expenses bear to such aggregate distributions. (C)

Disallowance of excluded amounts as deduction, credit, or exclusion

No deduction, credit, or exclusion shall be allowed to the taxpayer under any other section of this chapter for any qualified disability expenses to the extent taken into account in determining the amount of the exclusion under this paragraph. (3)

Additional tax for distributions not used for benefit of designated beneficiary

(A)

In general

The tax imposed by this chapter for any taxable year on any taxpayer who receives a payment or distribution from an ABLE account shall be increased by 10 percent of the amount thereof which is includible in gross income under paragraph (1). (B)

Exception

Subparagraph (A) shall not apply if the payment or distribution is made to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. (C)

Contributions returned before certain date

Subparagraph (A) shall not apply to the distribution of any contribution made during a taxable year if— (i)such distribution is made before the 60th day after the date on which the contribution was made, and (ii)such distribution is accompanied by the amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included in gross income for the taxable year in which such excess contribution was made.

(4)

Rollovers

Paragraph (1) shall not apply to any amount paid or distributed from an ABLE account to the extent that the amount received is paid, not later than the 60th day after the date of such payment or distribution, into— (A)another ABLE account for the benefit of— (i)the same beneficiary, or (ii)an individual who— (I)is the spouse of such individual with a disability, or bears a relationship to such individual with a disability which is described in section 152(d)(2), and (II)is also an individual with a disability, or (B)any trust which is described in subparagraph (A) or (C) of section 1917(d)(4) of the Social Security Act and which is for the benefit of an individual described in clause (i) or (ii) of subparagraph (A).

The preceding sentence shall not apply to any payment or distribution if it applied to any prior payment or distribution during the 12-month period ending on the date of the payment or distribution.

(5)

Change in beneficiary

Any change in the beneficiary of an ABLE account shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is an individual described in paragraph (4)(A)(ii) as of the date of the change. (d)

Tax treatment of accounts

Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any ABLE account. (e)

Community property laws

This section shall be applied without regard to any community property laws. (f)

Custodial accounts

For purposes of this section, a custodial account shall be treated as a trust if— (1)the assets of such account are held by a bank (as defined in section 408(n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will administer the account will be consistent with the requirements of this section, and (2)the custodial account would, except for the fact that it is not a trust, constitute an account described in subsection (b)(1).

For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof.

(g)

Reports

The trustee of an ABLE account shall make such reports regarding such account to the Secretary and to the beneficiary of the account with respect to contributions, distributions, and such other matters as the Secretary may require. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required. (h)

Inflation adjustment

(1)

In general

In the case of any taxable year beginning after 2010, the $500,000 dollar amount under subsection (b)(1)(A)(i)(II) shall be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost of living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2009 for calendar year 1992 in subparagraph (B) thereof. (2)

Rounding

If any amount as adjusted under paragraph (1) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. (i)

Regulations

The Secretary, in consultation with the Secretary of Health and Human Services, shall prescribe regulations to carry out the purposes of this section, including regulations— (1)to ensure that individuals do not have more than 1 ABLE account, and (2)to prevent fraud and abuse with respect to amounts claimed as qualified disability expenses.

(2)

Conforming amendments

(A)

Tax on excess contributions

(i)

In general

Subsection (a) of section 4973 of the Internal Revenue Code of 1986 is amended by striking or at the end of paragraph (4), by inserting or at the end of paragraph (5), and by inserting after paragraph (5) the following new paragraph:

(6)an ABLE account (within the meaning of section 530A),

(ii)

Excess contributions

Section 4973 of such Code is amended by adding at the end the following new subsection:

(h)

Excess contributions to ABLE accounts

For purposes of this section, in the case of an ABLE account (within the meaning of section 530A), the term excess contributions means the sum of— (1)the amount by which the sum of the amount contributed for the taxable year to such accounts plus such amounts contributed for all preceding taxable years exceeds the amount described in section 530A(b)(1)(A)(ii), and (2)the amount determined under this section for the preceding taxable year, reduced by the distributions from such account which were includible in gross income under section 530A(c)(1).

For purposes of this section, an amount which is distributed out of an ABLE account in a distribution to which section 530A(c)(3)(C) applies shall be treated as an amount not contributed.

(B)

Tax on prohibited transactions

(i)

In general

Paragraph (1) of section 4975(e) of such Code (defining plan) is amended by redesignating subparagraph (G) as subparagraph (H), by striking or at the end of subparagraph (F), and by adding after subparagraph (F) the following:

(G)an ABLE account described in section 530A, or

(ii)

Exemption

Subsection (d) of section 4975 of such Code (relating to exemptions) is amended by striking or at the end of paragraph (22), by striking the period at the end of paragraph (23) and inserting ; or, and by inserting after paragraph (23) the following:

(24)in the case of an ABLE account, any transaction to provide housing or other services by a family member to or for the designated beneficiary of the trust to the extent that such transaction does not exceed the fair market value of the housing or service (as the case may be) provided.

(iii)

Special rule

Subsection (c) of section 4975 of such Code (relating to tax on prohibited transactions) is amended by adding at the end the following new paragraph:

(7)

Special rule for ABLE accounts

An individual for whose benefit an ABLE account is established and any contributor to such account shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if section 530A(d) applies with respect to such transaction.

(C)

Rollovers from certain other tax favored accounts

(i)

Qualified tuition programs

Paragraph (3) of section 529(c) of such Code is amended by adding at the end the following new subparagraph:

(E)

Contributions to ABLE account

Subparagraph (A) shall not apply to that portion of any distribution which, within 60 days of such distribution, is contributed to an ABLE account for the benefit of the designated beneficiary.

(ii)

Education savings accounts

Subsection (d) of section 530 of such Code is amended by adding at the end the following new paragraph:

(10)

Contributions to ABLE account

Paragraph (1) shall not apply to any amount paid or distributed from a Coverdell education savings account to the extent that the amount received is paid, not later than the 60th day after the date of such payment or distribution, into an ABLE account for the benefit of the same beneficiary.

(iii)

Health savings accounts

Subparagraph (A) of section 223(f)(5) is amended— (I)by inserting (i) before into a health savings account, and (II)by inserting or (ii) into an ABLE account for the benefit of such beneficiary before not later than the 60th day. (iv)

Certain IRAs

Subparagraph (A) of section 408(d)(3) is amended by striking or at the end of clause (i), by striking the period at the end of clause (ii) and inserting ; or, and by inserting after clause (ii) the following new clause:

(iii)the entire amount received (including money and other property) is paid into an ABLE account for the benefit of the child or grandchild of such individual not later than the 60th day after the day on which the payment or distribution is received.

(D)

Reports

Paragraph (2) of section 6693(a) of such Code is amended by striking and at the end of subparagraph (D), by striking the period at the end of subparagraph (E) and inserting and, and by inserting after subparagraph (E) the following new subparagraph:

(F)section 530A(g) (relating to ABLE accounts).

(E)

Exclusion from income under SSI

Subsection (b) of section 1612 of the Social Security Act (42 U.S.C. 1382a) is amended by striking or at the end of paragraph (22), by striking the period at the end of paragraph (23) and inserting ; or, and by inserting after paragraph (23) the following:

(24)any contribution to an ABLE account.

(F)

Clerical amendment

The table of parts for subchapter F of chapter 1 of such Code is amended by inserting after the item relating to part VIII the following new item:

Part IX. Savings for individuals with disabilities

(b)

Annual reports

(1)

In general

The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, shall report annually to Congress on the usage of ABLE accounts under section 530A of the Internal Revenue Code of 1986. (2)

Contents of report

Any report under paragraph (1) shall include— (A)the number of people with an ABLE accounts, (B)the total amount of contributions to such accounts, (C)the total amount and nature of distributions from such accounts, (D)issues relating to the abuse of such accounts, if any, and (E)the amounts repaid from such accounts to State Medicaid programs established under title XIX of the Social Security Act. (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

Deduction for contributions to ABLE accounts

(a)

Deduction

(1)

In general

Part VII of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by redesignating section 224 as section 225 and inserting after section 223 the following new section:

224.

Contributions to ABLE accounts

(a)

Allowance of deduction

In the case of a qualified individual, there shall be allowed as a deduction an amount equal so much of the qualified disability savings contributions made during the taxable year as do not exceed $2,000. (b)

Limitations

(1)

Limitation based on modified adjusted gross income

(A)

In general

The amount which would (but for this paragraph) be taken into account under subsection (a) for the taxable year shall be reduced (but not below zero) by the amount determined under subparagraph (B). (B)

Amount of reduction

The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as— (i)the excess of— (I)the taxpayer's modified adjusted gross income for the taxable year, over (II)the applicable amount, bears to (ii)the phaseout amount. (C)

Applicable amount; phaseout amount

For purposes of subparagraph (B), the applicable amount and the phaseout amount shall be determined as follows: The applicable amount is:The phaseout amount is: In the case of a joint return$60,000$10,000 In the case of a head of household$45,000$7,500 In any other case$30,000$5,000.

(D)

Modified adjusted gross income

For purposes of this paragraph, the term modified adjusted gross income means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. (E)

Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2010, each of the applicable amounts in the second column of the table in subparagraph (C) shall be increased by an amount equal to— (i)such dollar amount, multiplied by (ii)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2009 for calendar year 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $500.

(2)

Earned income limitation

The amount of any deduction allowed under subsection (a) with respect to any taxpayer shall not exceed the earned income (as defined by section 32(c)(2)) of such taxpayer for such taxable year. (c)

Qualified individual

For purposes of this section, the term qualified individual means an individual with a disability (as defined in section 530A(b)) who is the designated beneficiary of an ABLE accounts (as defined by section 530A(a)). (d)

Qualified disability savings contributions

The term qualified disability savings contributions means, with respect to any taxable year, the aggregate contributions made by the taxpayer to the ABLE account for an individual with a disability (as so defined) with respect to which such taxpayer is the qualified individual. (e)

Treatment of contributions by dependent

If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins— (1)no deduction shall be allowed under subsection (a) to such individual for such individual’s taxable year, and (2)any qualified disability savings contributions made by such individual during such taxable year shall be treated for purposes of this section as made by such other taxpayer.

(2)

Conforming amendments

The table of sections for part VII of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended redesignating the item relating to section 224 as relating to section 225 and by inserting after the item relating to section 223 the following new item:

Sec. 224. Contributions to ABLE accounts.

(b)

Study

(1)

In general

The Secretary of the Treasury (or the Secretary's delegate), in consultation with the Secretary of Health and Human Services, shall conduct a study on the use of ABLE accounts (as defined by section 530A(a) of the Internal Revenue Code) and the effect of the deduction allowed under section 224 of such Code for contributions to such accounts. Such study shall consider the effect that a tax credit or a refundable matching tax credit would have on the use of and contributions to such accounts. (2)

Report

Not later than 5 years after the date of the enactment of this Act, the Secretary of the Treasury shall report to Congress on the study conducted under paragraph (1). (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.