ABLE Accounts and 529 College Savings Plans

Learn the similarities and differences between 529 and 529A accounts.
Woman using laptop to learn about ABLE Accounts and 529 College Savings Plans

The 529A ABLE Savings Account Program allows individuals with disabilities and their families to save in tax-advantaged accounts for disability-related expenses. Balances in such ABLE accounts also receive favorable treatment in eligibility determinations for federal benefits programs. These accounts have many similarities to 529 college savings accounts, in that earnings are tax-deferred and withdrawals are tax-free if used for qualified expenses. The parallels between these two programs also raise questions as to how these accounts relate to one another. We've provided some key answers below:

Q: Can the same beneficiary have a 529 college savings account and an ABLE account at the same time? 

A: Yes, there is no prohibition against an individual being the owner or beneficiary of an ABLE account and the owner or beneficiary of a 529 college savings account simultaneously.

Q: If a family opens a 529 college savings account, and the student beneficiary then develops a disability, can the family roll the funds from the 529 account into an ABLE account?

A: Yes, 529 account funds can be rolled into an ABLE account without incurring any tax or penalty. The funds rolled over from the 529 plan are subject to the annual contribution limit of $17,000 into an ABLE account. The rollover may originate from any state's 529 plan.

Q: If my child is unable to attend college due to a disability, can I withdraw my 529 college savings funds without incurring a penalty?

A: The 10% penalty tax on the earnings portion of 529 account withdrawals not used for qualified higher education expenses can be avoided if the designated beneficiary is a person with disabilities. Per IRS Publication 970, "A person is considered to be disabled if he or she shows proof that he or she can't do any substantial gainful activity because of his or her physical or mental condition. A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration." So, to support the tax reporting position that the 10% penalty tax is not due, the recipient of the withdrawal will need a written doctor's verification that the beneficiary is a person with disabilities. The earnings portion of the amount withdrawn from the 529 account, however, still counts as taxable income in the year it is withdrawn.

Q: Is the total maximum that can be saved in an ABLE account the same amount as in a 529 account?

A: Yes, as is the case with a 529 college savings account, an ABLE account balance can grow without limit, but no additional contributions can be made to the account that cause the balance to exceed the limit imposed by the state sponsoring the plan. The current limit imposed by MEFA is $500,000. An ABLE account has an annual maximum contribution limit of $17,000. Although balances in an ABLE account are generally disregarded in determinations of the account owner's eligibility for federal means-tested benefits, the maximum balance in an ABLE account that is disregarded for purposes of Supplemental Security Income (SSI) benefits is $100,000. If you exceed the $100,000 limit, the impact to SSI benefits is significant.  You should consult with a qualified adviser to determine how an ABLE account may impact your SSI benefits before investing. None of the balance in a 529 account is disregarded in determining the 529 account owner's eligibility for federal benefits.

If you would like to learn further information about the Massachusetts ABLE Savings Account Program, please visit our designated webpage. We also invite you to sign up to receive updates on the ABLE program. 

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