MBR Financial, Inc.
2000 West Loop South
Ste. 1510
Houston, TX 77027

Is an ABLE account subject to federal tax?

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.

IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020.