TCJA Expands Contribution Options for ABLE Accounts

Congress passed the “Stephen Beck Jr., Achieving a Better Life Experience” Act in 2014 to expand the types of assistance available to help disabled individuals maintain health, independence and quality of life without interfering with access to means-tested government benefits.  The most beneficial change to result from these legislative efforts was the establishment of 529 ABLE accounts.  In the last several years, many state legislatures, including Oregon, have implemented their own version of ABLE accounts and several others are in the process of starting their own programs. The new tax law also made several important changes to 529 ABLE accounts that expand the contribution options for account holders. The purpose of this post is to inform generally about 529 ABLE accounts, provide recommendations on how to use the accounts to their fullest potential, explain how they differ from 529 College Savings plans, and also give a brief status update on Oregon’s ABLE program and the progress neighboring states have made towards establishing their own programs.

What is an ABLE Account?

ABLE accounts are tax-advantaged savings accounts for individuals with disabilities.  Whereas parents and grandparents are usually the owner of a 529 College Savings plans established for their beneficiary children, the 529 ABLE account beneficiary has ownership of the account.  The beneficiary or account holder controls how to spend their funds.  The account holder, family, friends or others can all make contributions to the account, but only with post-tax dollars that will only qualify for a state income tax deduction, if permitted.  Despite this limitation, account holder will not owe any tax on income the account earns during the year.  Typically, individuals that make annual contributions to the account for a single tax year are limited to $15,000, the maximum amount an individual can gift to someone without reporting it to the IRS. Any income the account earns will not be taxed to the account holder.

How are ABLE Account Funds Spent?

Generally, ABLE accounts only allow for an account holder or authorized individual to allocate funds for a “qualified disability expense”.  The Treasury Department and Internal Revenue Service (IRS) have issued proposed regulations that recommend a broad definition of “quality disability expense” to allow dispersal of funds for all expenses that assist the beneficiary in increasing or maintaining their health, independence and/or quality of life.  Qualified disability expenses include but are not limited to basic living expenses, education and tuition costs, medical costs, transportation, assistive technology, personal support services, legal fees, communication devices such as smartphones, housing, oversight and monitoring, mental health services, job training support and financial management services.  ABLE account holders do not need to submit documentation of their expenses to any governmental agency, but ABLE advocacy groups strongly recommend retaining documentation to justify expenses in case of an IRS or Social Security audit.

Who Qualifies?

In order to qualify for an ABLE account, an individual must have significant disabilities that substantially developed before the age of 26.  If the individual already receives SSI/SSDI and meets the age criteria, they will automatically qualify for ABLE.  If the individual does not receive SSI/SSDI but meets the age criteria, they can still establish an account as long as they meet the Social Security criteria for a significant disability and they receive a certification letter from a doctor.

What are the Limits?

Customarily, disabled individuals that wish to qualify for public benefits such as SSI, SNAP, and Medicaid must meet a resource test that limits eligibility to earning more than $700 a month or having $2,000 of owned accessible financial sources.  This threshold forces disabled individuals to remain poor in order to continue qualifying for public benefits.  Congress established ABLE accounts for the purpose of supplementing but not supplanting, financial aid provided by public benefits, private insurance and other resources.  Many states have set the total account limit to around $300,000, with some notable exceptions, and the first $100,000 in ABLE accounts are considered exempt from the SSI $2,000 resource limit.  If an ABLE account exceeds this $100,000 limit, the beneficiary’s SSI cash benefit will be suspended until the account falls back below $100,000.  In contrast, SNAP benefits and Medicaid do not consider ABLE accounts a countable resource for eligibility, and therefore the amount of money in the ABLE account does not affect eligibility for those programs.  With 529 college savings plans, SSI does not consider them as countable resources generally since the parent or grandparent owns the account. Distributions to the disabled beneficiary that exceed the $2,000 resource limit can still trigger ineligibility issues.

Recent Changes

The new tax law signed late last year made several important changes to ABLE accounts.  First, under the ABLE to Work Act, an ABLE account holder who works can contribute an additional amount beyond the $15,000 maximum.  The new limit is either the lesser of the Federal poverty limit for a one person household ($12,060) or the individual’s overall compensation for the whole year.  The legislation also allows an account holder to claim a credit for contributions made to their ABLE account.  The credit is a nonrefundable tax credit for eligible taxpayers making qualified retirement savings contributions.  Second, the ABLE Financial Planning Act, also included in the new tax law, allows ABLE account holders to roll over funds from a regular 529 College Savings plans to ABLE accounts tax free up to the maximum contribution level.  This change helps families who originally established 529 College Savings plans for their children before receiving a child’s diagnosis or for older children who suffered a life-changing event and now need to use their 529 College Savings funds for alternate purposes.  Disability Advocates have proposed legislation to raise the age of onset of disability from 26 to 46 in order to help individuals that incur disabilities later in life to qualify for ABLE accounts but the current 26 age limit is still in effect as of this year.

Differences Between the States

While ABLE is a federal program, the accounts are managed at the state level.  Qualified individuals will need to sign up for either their state’s program or if their state does not offer ABLE, a state’s program that accepts out of state residents.  Currently 30 states offer ABLE and each state often has different program managers, different account limits, state tax deductions for in-state residents, different monthly account/debit card fees and more.  Below is a summary the Oregon, Washington, and Idaho programs.


Oregon has launched their own state ABLE program for in-state residents, and even allows out-of-state residents to establish ABLE accounts through the ABLE for ALL Savings Plan.  BNY Mellon manages Oregon plans with four investment options and an additional fee of 0.30% on the investment.  State residents who sign up with the Oregon ABLE Savings Plan will have to pay a $45 annual fee and out-of-state residents who sign up for the ABLE for ALL Savings Plan will have to pay a $35 annual fee.  Oregon allows out-of-state ABLE accounts to roll over into the Oregon ABLE Program without a fee but will charge a $50 fee if rolling over an Oregon plan into a different state.  Oregon does have an income tax and offers a state income tax deduction for Oregon residents who make contributions up to $2,330 for single filers ($4,660 for joint) to ABLE accounts with beneficiaries under the age of 21.  Account holders can also set up a gifting page online where friends and family can contribute funds to the ABLE account directly.  Oregon has set the account limit to $310,000.  A recent Oregonian article highlighted the way that the Oregon program may improve the quality of life for Oregonians.


Washington State planned to have their own state ABLE account program launch in Fall 2017, but due to unforeseen circumstances referenced in a message from the Washington State Department of Commerce, the program will not launch until sometime in 2018.  Until then, the State recommends that Washington residents establish an Oregon ABLE account and then transfer the account to Washington once the program finally rolls out.  BNY Mellon will manage Washington State plans with four investment options, and there is an annual fee of $35 plus an investment fee ranging from 0.30%-0.38%.  Washington will allow out-of-state residents to create ABLE accounts and will also allow Washington residents to transfer out of state ABLE accounts into a Washington State account with no fee. Since Washington does not have an income tax, there is no state tax deduction offered for in-state residents.  The most important difference to note regarding ABLE accounts established in Washington State is that the total account limit caps at $86,000 to start, far lower than other states with established programs.


Idaho does not currently offer its own state ABLE program but allows its residents to open an ABLE account in another state that allows out-of-state residents to register.  The Idaho legislature is currently considering adopting ABLE laws to start its own program but unlike Washington State’s program, there is no current timeframe of when their program will launch.

Come See Us

Both the ABLE to Work Act and ABLE Financial Planning Act included in the new tax law greatly expand the contribution options available to established ABLE account holders and families still deciding.  Every family situation is different and the new options that allow the rollover of 529 College Savings plans could be greatly beneficial to the long-term quality of life for your disabled child or close family member.  While Oregon is currently the only state in the Northwest that has established a state program, we recommend that residents of Washington, Idaho, and other states who are interested in ABLE accounts potentially look into establishing an Oregon account and then rolling the account over once their respective state finally launches their program.

Breaking down the Wayfair decision for Oregon businesses: Why you should now care about sales tax

The US Supreme Court’s decision in South Dakota v. Wayfair.

Earlier today, the United States Supreme Court issued its opinion in South Dakota v. Wayfair, et al.  In 2016, South Dakota passed a law that requires out of state vendors to collect its sales tax if those vendors had: (1) $100,000 of sales into the state or (2) more than 200 separate transactions for the delivery of goods or services into the state.  Wayfair (an online furniture retailer) sold goods from its website to customers in South Dakota and did not collect sales tax on those transactions.  South Dakota sued to compel Wayfair (among others) to collect its sales tax.  Justice Kennedy’s majority opinion, finding in favor of South Dakota overruled 26 years of judicial precedent in this area.  Prior to Wayfair, states could only make companies with a physical presence in the state collect and remit sales tax on transactions with in-state customers.

States have been trying to get around the physical presence requirement for years.  There was a whole stream of affiliate nexus, agency nexus, and flash nexus cases in the early 2000s.  These cases have only gotten weirder as business has evolved and our societal relationship with the internet has changed.  Most recently, we’ve seen Massachusetts assert that a company has physical presence in a state when that company’s website places a “cookie” on a customer’s web browser.  This is based, in part, on the theory that electronic information has a physical component, which is beyond the scope of this discussion.

One of the problems states have had in eliminating the physical presence rule is the legal concept of stare decisis – to stand by things decided.  This means that a court must give deference to the applicable prior legal opinions.  The majority in Wayfair glossed over the deference that it must give the prior opinion with the broad pronouncement, “If it becomes apparent that the Court’s Commerce Clause decisions prohibit the States from exercising their lawful sovereign powers in our federal system, the Court should be vigilant in correcting the error.” (no citation given).  The court also stated: “Though Quill [the earlier cases] was wrong on its own terms when it was decided in 1992, since then the Internet revolution has made its earlier error all the more egregious and harmful.”  So contrite was the court that Justice Thomas used his separate concurrence to express remorse that he hadn’t joined in Justice White’s dissent in the original Quill decision.  Chief Justice Roberts, joined by Justices Breyer, Sotomayor, and Kagan, state that State had not overcome the burden of proof necessary to overturn the earlier cases.

In Wayfair, the Supreme Court opinion focused on the evolution of online sales and the “significant revenue loss” to the states that has resulted from the requirement that vendors have a physical presence.  Justice Kennedy’s opinion specifically called out a statement on Wayfair’s webpage that stated, correctly, “[o]ne of the best things about buying through Wayfair is that we do not have to charge sales tax.”  The irony of this position is that each state that has a sales tax also has a use tax.  Use taxes are complementary taxes whereby an individual resident of that state is required to remit use tax, if they don’t pay sales taxes on the transaction, at the same rate that they would pay sales tax if the sale “occurred” in Oregon.  Use taxes are unpopular and many states are incompetent at compelling their residents to remit use tax.  If the states were better at collecting use tax, there wouldn’t be any revenue loss at all.  Prior to this decision, while Wayfair didn’t have to collect sales tax, its customers in South Dakota still did have to self-assess and remit use tax.

The court said that the South Dakota thresholds, noted above, created the presumption of a company having “minimum contacts” with a state sufficient to survive constitutional scrutiny.

The Court’s decision in Wayfair is going to open the floodgates for state sales tax audits on out of state companies that sell goods or perform enumerated services for customers in their states.  Many of these states have statutes that allow them to impose their tax systems “to the fullest extent allowed by law” (i.e., under the Constitution).

There has been a question for some years about whether Congress would act to address the question about when physical presence is required for states to tax transactions.  In part, the question has been gaining traction because many states have started to impose their non-sales taxes (income, franchise, etc.) on out of state vendors that have so-called “economic nexus” with the state.  Justice Gorsuch’s separate concurrence invited a discussion of whether there is a discussion that needs to take place about the role of Article III courts to invalidate state laws.  Specifically, Justice Gorsuch does not appear to agree entirely with the Court’s prior dormant commerce clause holdings, preferring to defer to Congressional action to regulate interstate commerce.  Chief Justice Roberts’ dissent correctly noted that “A good reason to leave these matters to Congress is that legislatures may more directly consider the competing interests at stake.  Unlike this Court, Congress has the flexibility to address these questions in a wide variety of ways.”

From a practical perspective, one of the biggest issues with this case is that the majority opinion basically ignores the issue of how horrifically complicated it will be for companies to report sales and use tax to all taxing jurisdictions where they are over the minimum thresholds.  It states “Eventually, software that is available at a reasonable cost may make it easier for small businesses to cope with these problems.”

In 2018, there are over 10,000 state and local jurisdictions that impose a sales tax on their customers.  Most of these overlap in one way or another, so (for example) a taxpayer could buy a widget for $10 and pay $1 of tax.  This may be broken up as: (1) a state level tax at 6%; (2) a municipal tax at 2.5%; (3) a school district tax at 1%; and, (3) a cultural district tax at 1%.  This taxpayer’s neighbor, across the street is located outside of the cultural district, but may be located in a football stadium district that imposes a rate of 2%.  If the widget vendor rises to the minimum economic level, its invoicing systems will have to distinguish between the different taxing districts and assess the correct rate of tax on both sales (10% and 11%, respectively).  Therefore, the widget vendor is going to have to buy complex and expensive software and then integrate it with its existing systems to know whether transactions are subject to tax.  Chief Justice Roberts’ dissent correctly called out the majority: “The Court, for example, breezily disregards the costs that its decision will impose on retailers.  Correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers.”

Why Should Oregon Business Care?

Oregon, emphatically, does not have a sales tax.  Except on heavy equipment, bikes and cars…. So, ya know….   But we don’t have a sales tax!

Oregon business owners, however, sell things to customers outside of the state to jurisdictions that do assess a sales tax on their residents.  Therefore, if the Oregon business crosses the state’s economic nexus thresholds it will now be required to collect and remit sales tax to that state.  Each state has different thresholds and we expect that we’ll see states asserting economic nexus that have previously abstained from doing so as a way to export their tax collection obligation to out of state folks.

One thing to keep in mind as well in this new world order is the fact that sales tax is imposed on the sale of tangible personal property at retail AND certain specific enumerated services.  Most service business owners in Oregon don’t think of what they are providing as taxable, so they should confirm that they are still not subject to tax in the states where they provide services to customers.  Areas that are often taxed by states may include: Services related to tangible personal property (decorating, repair, etc.); Services to real property (landscaping, maintenance, decorating, etc.); personal services; Business services; Professional services (lawyers, accountants, physicians, etc.); and amusement/recreation services.  We’ve seen a tremendous rise in the last few years of services provided remotely or over the internet and of “software as a service.”  These may also be subject to tax.

Stay tuned.

A large number of our clients are now going to be subject to sales tax collection and remittance requirements.  Therefore, we’re going to do a few blog posts in the next few weeks — sales tax 101 — for our Oregon business owners.