BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 324|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 324
Author: Pavley (D), et al.
Amended: 4/15/15
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/8/15
AYES: Hertzberg, Nguyen, Bates, Beall, Hernandez, Lara, Pavley
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
SUBJECT: Income taxation: savings plans: Qualified ABLE
Program
SOURCE: Author
DIGEST: This bill conforms state law to the recently enacted
Stephen Beck, Jr., Achieving a Better Life Experience Act of
2014 (ABLE Act).
ANALYSIS:
Existing law:
1)Does not automatically conform to changes to federal tax law,
except for specific retirement provisions.
2)Conforms to federal law as of a specified date, currently
January 1, 2009.
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3)Conforms with modifications to educations savings accounts
authorized by Section 529 of the Internal Revenue Code (529s),
and directs the State Treasurer's Office to implement
California's 529 program, currently known as "ScholarShare."
4)Does not conform to the ABLE Act, which allows individuals who
became blind or disabled before reaching 26 years of age to
create tax-free savings accounts similar to 529s.
5)Applies income and asset tests for some programs allowing
disabled individuals to receive Medi-Cal benefits.
This bill:
1)Conforms state tax law to the ABLE Act, thereby allowing the
creation of ABLE accounts in California, and ensuring that
ABLE account earnings and distributions for qualified services
are not included in the eligible individual's income for state
tax purposes.
2)Directs the State Treasurer's Office to implement the program,
and issue any regulations necessary.
3)Defines several terms, including:
a) "Eligible individual" as an individual who is blind or
disabled,
with onset before 26 years of age. The individual must be
entitled to Social Security Disability Insurance benefits,
or have a disability certificate on file with the Internal
Revenue Service (IRS).
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b) "Qualified services" include education, housing,
transportation, employment training and support, assistive
technology and personal support services, health,
prevention, and wellness, financial management and
administrative services, legal fees, oversight and
monitoring, and funeral and burial services.
4)Provides that ABLE account balances below $100,000 don't count
when considering the eligible individual's Medi-Cal
eligibility.
Comments
On December 19, 2014, President Obama signed the ABLE Act, which
allows individuals who became blind or disabled before reaching
age 26 to create tax-free savings accounts. ABLE accounts
generally follow the same rules as 529s: individuals can make
nondeductible cash contributions to an ABLE account in the name
of a specified beneficiary, and earnings can grow tax free.
ABLE account distributions are also not included in the
beneficiary's income so long as they're used for qualified
services for the beneficiary, and distributions don't exceed the
cost of those services.
The ABLE Act directs states to establish one ABLE account for
each beneficiary who is a resident of the state. The ABLE Act
additionally directs the IRS to issue regulations by June 19,
2015, to implement the program to guide states as they enact
legislation creating ABLE accounts. SB 324 implements the ABLE
Act in California, and directs the State Treasurer to administer
ABLE accounts on behalf of qualified Californians.
While similar, the differences between 529s and ABLE accounts
are important. Education accounts have been criticized as tax
shelters for wealthy individuals to fund education expenses for
their children, with only 10% of account holders having less
than $50,000 in annual income, and more than 70% with more than
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$150,000. While federal law doesn't set explicit contribution
limits for 529s, the federal gift tax can apply, but is
generally avoided by establishing multiple accounts for the same
beneficiary. In response to these criticisms, President Obama
briefly proposed to tax 529 earnings as ordinary income before
withdrawing the proposal. ABLE accounts avoid these critiques
by limiting contributions to a total of $14,000 per year, and
allowing only one account per individual.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
The Franchise Tax Board (FTB) indicates that this bill will
lead to a revenue loss (General Fund) of $100,000 in 2015-16,
$400,000 in 2016-17, and $900,000 in 2017-18. Additionally,
FTB will incur minor costs to implement its provisions of this
bill.
The State Treasurer's Office, the entity that would administer
ABLE accounts on behalf of qualified Californians, would incur
annual costs in the hundreds of thousands of dollars
minimally. The precise amount would depend on how this bill
is implemented.
SUPPORT: (Verified5/28/15)
State Treasurer John Chiang
Association of Regional Center Agencies
Autism Speaks
California Association for Health Services at Home
California Disability Services Association
California Taxpayers Association
Center for Autism and Related Disorders
Down Syndrome Society of Orange County
National Down Syndrome Society
The Arc and United Cerebral Palsy
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OPPOSITION: (Verified5/28/15)
None received
ARGUMENTS IN SUPPORT: According to the author, "SB 324
establishes an ABLE Act program, within the State Treasurer's
office, that will provide financial tools for individuals with
disabilities. The measure also ensures that these ABLE savings
accounts are tax free. This new program will ensure that
individuals with developmental disabilities and their families
will be able to save without fear of losing eligibility for
public assistance programs."
Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
5/30/15 17:35:07
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