She said the proposals leave open the possibility administrators would have to keep records on whether participants are spending the money in ways that keeps the tax benefits and asset eligibility for government aid. She and others are asking the IRS to reword the language so that potential is eliminated.
“The Social Security Administration, which administers SSI, can get that information from the participants directly without the states being the middlemen,” she said.
But if the IRS won’t give that responsibility to Social Security, she said the agency should allow participants to verify they are spending the money correctly.
Another expense the states hope to eliminate is the proposed mandate for them to get tax identification number of all persons making contributions.
“So if grandma makes a $25 contribution for a birthday present, we’d have to get a record of that. That’s not a requirement with 529 [plans],” said McGrath.
Most states aren’t spending tax dollars on the programs, meaning they will have to fund themselves through fees.
Scott Gates, the director of the college 529 savings program in Kansas, said his state may not be able to get enough in fees from an estimated 5,000 to 10,000 participants to operate an ABLE plan.
“We’re really worried how we can pull this off,” Gates said.
If the proposed rules take effect, he said the only way smaller states might be able to afford to offer their residents ABLE is to form consortiums with other states.