Contribution Limits Applicable to ABLE Accounts, 54529-54533 [2019-21477]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[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]


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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.

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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comments cannot be edited or withdrawn.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.
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    \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.
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    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 https://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