Assets in an ABLE account for a disabled person are generally not subject to federal income tax. And ABLE account distributions for qualified disability expenses of the designated beneficiary are also free of federal income tax. However, the earnings portion of distributions from an ABLE account in excess of qualified disability expenses is generally included in the gross income of the designated beneficiary (and subject to an additional 10% tax unless the distribution is made on or after the death of the designated beneficiary).
During his or her lifetime, the designated beneficiary can change the designated beneficiary of the ABLE account without federal tax consequences, provided that the new beneficiary is his or her sibling who was also disabled before age 26. The designated beneficiary can also roll over a distribution to another (or the same) ABLE account of the designated beneficiary or an eligible brother or sister without tax consequences if the rollover is completed within 60 days. If rolled over to a new account of the same beneficiary, the old account must close. Only one rollover is permitted to any ABLE account of the same designated beneficiary within a 12-month period. An ABLE program may also allow direct program-to-program transfers as a way to change state programs or the designated beneficiary.
If the beneficiary ceases to be disabled, the ABLE account continues to be treated as qualified. However, no new contributions can be made to the account, and distributions from the account are not treated as qualified for tax purposes. If the disability resumes, contributions can start back up (subject to the limits on contributions), and distributions can once again be treated as qualified.
Upon the death of the beneficiary, the ABLE account balance is included in his or her gross estate for federal estate tax purposes. Amounts paid from the account for outstanding qualified disability expenses, and to a state for claims under its Medicaid program, may be deductible for federal estate tax purposes.
ABLE accounts are relatively new, and you need to check which states currently have ABLE programs and for any special tax treatment that might apply under state law. If you have questions or need assistance, contact the experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Disclosures: The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
