We keep up to date on legislative changes that may impact the lives of people with disabilities and their families. 

The Achieving a Better Life Experience (ABLE) Act is currently awaiting approval by Congress.  This change in the law would allow third parties, (loved ones, families, etc.) to fund an account to pay for quality of life for a person with disabilities.  Similar to College 529 plans, these plans would allow money to be saved and spent on qualified expenses without affecting eligibility for government programs.  The details of this legislation are pending but in all likelihood will include a cap as to the amount that could be saved without affecting benefits.  All reports state that this legislation has bipartisan support. 

The one drawback, from our point of view, is that the legislation in its current form includes a Medicaid payback provision.  Because of this payback provision, this ABLE account is likely to be just one piece of the planning solution that families may implement along with a Non-payback Special Needs Trust and other estate planning documents.  

As the Federal Government is looking for more sources of tax revenues, the President and Congress are looking to the billions of dollars Americans have placed in IRA's and 401(K) plans to help feed their insatiable appetite for money.  By tapping tax-advantaged retirement savings accounts, the government can bring in more tax revenues without actually raising taxes.

The President included a number of proposals in his 2015 budget that could have an impact on the retirement planning of ordinary Americans as opposed to people with millions in their 401(k) plans.  The President's proposal would institute required minimum distributions, or RMDs, from Roth IRAs once savers turn 70 1/2 -- similar to the distributions that people must make from traditional IRAs and other retirement accounts.  Currently there is no RMD for Roth IRA accounts.  The proposal would also eliminate RMDs for people with $100,000 or less in their IRAs.

Traditional IRA account owners have to pay income taxes at ordinary income tax rates on the money they withdraw from their IRA and retirement accounts.   Owners of Roth IRAs have already been taxed, so taking an RMD could mean moving Roth savings from a tax-free account to an account where earnings would generate taxable income.  For many Americans in Roth accounts, this change won't have much impact. If you have to take money out of your savings and spend it, you wouldn't pay any extra income taxes. Even if you put your RMD in some sort of cash account such as a money market fund, you're unlikely to generate enough income to affect your tax bill very much.

The people who would feel such a change the most are the ones who don't need to spend the money in their Roth IRAs and hope to leave the account to their heirs. Under current law, heirs are able in many circumstances to let the inherited account continue to grow tax-free over their life expectancy.  We are monitoring tax proposals as they are being introduced into tax and budget legislation that could have an impact on your estate plans.

These proposed rule changes would make Roth IRAs a much less attractive savings vehicle for people who have substantial retirement savings and want to leave a tax-free inheritance to their children.

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