Expansion of 529 plans to allow transfers to ABLE accounts
The new tax legislation also allows 529 account owners to roll over (transfer) funds from a 529 plan to an ABLE plan without federal tax consequences. This ability to transfer funds will expire at the end of 2025 unless a future Congress acts to extend the law.
An ABLE plan is a tax-advantaged account that can be used to save for disability-related expenses for individuals who become blind or disabled before age 26. Like 529 plans, ABLE plans allow funds to accumulate tax deferred, and withdrawals are tax-free when used to pay the beneficiary’s qualified disability expenses, which may include (but are not limited to) housing, transportation, health care and related services, personal assistance, and employment training and support.
ABLE accounts have annual and lifetime contribution limits. Contributions from all donors combined during the year cannot exceed the annual gift tax exclusion ($15,000 in 2018). As for lifetime limits, each state sets its own limit, which is also the state’s maximum for its 529 college savings plan contributions. In most
states, this limit is at least $350,000.
A list of ABLE plans offered, by state, and a comparison tool are available at ablenrc.org.
Note: Investors should carefully consider the investment objectives, risks, charges, and expenses associated with 529 plans and ABLE plans before investing. Specific information is available in each plan’s official statement. Participating in a 529 plan or ABLE plan may involve investment risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. Before investing, consider whether your state offers residents favorable state tax benefits for 529 plan or ABLE plan participation, and whether those benefits are contingent on joining the in-state plan. Other state benefits for 529 plans may include financial aid, scholarship funds, and protection from creditors.