Tax Facts

389 / What distribution requirements apply to ABLE accounts?

Much like a traditional IRC Section 529 college savings plan, ABLE account distributions must be used to fund certain specified expenses of the disabled beneficiary or will become subject to a 10 percent penalty tax. In addition to the 10 percent penalty, any distributed earnings are taxed at the individual’s normal income tax rate if the distribution is not used for qualified expenses.1

The range of qualified expenses is broad, and includes “expenses related to the individual’s disability,” such as expenses for health care, housing, transportation, job training, assistive technology, personal support, financial management, legal fees and related services and expenses.2

Individuals are generally limited to establishing only one ABLE account. Amounts initially contributed to an ABLE account can be rolled over into another ABLE account established either for the same beneficiary, or for a sibling of that beneficiary who also meets the eligibility requirements discussed in Q 386. See Q 388 for a discussion of changes to the contribution limits and rollover rules that impact ABLE accounts under the 2017 tax reform law.

1.     H.R. 647, § 102.

2.     H.R. 647, § 102.

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