Helping children with special needs
529 funds now can be rolled over into ABLE account
Q: I heard that the new tax law now allows money from a 529 plan to be rolled over into an ABLE account for children who have special needs. How would I do that, and are there any limitations or special issues to consider?
A: Yes, the new tax law now allows families to roll over money from a 529 college-savings plan into an ABLE account. This year, you can roll over up to $15,000, which includes any rollovers and new contributions to the ABLE account. So if you or others have already put some money into a child’s ABLE account in 2018, those contributions will reduce the amount you can roll over this year.
If you want to move a larger balance from a 529 to an ABLE, you can spread your rollovers over several years. You can roll over the money from any state’s 529 into any state’s ABLE. (You can only have an ABLE in one state at a time).
Also, a rollover is only permitted if the ABLE account beneficiary is the same as the 529 beneficiary or at least a family member of the 529 beneficiary. The technical definition of family member is slightly different for 529s and for ABLEs, and the states are now ironing out the details. Because the rollover provision is so new, most states don’t have forms to make the transfer automatically yet.
“Someone interested in a rollover should check with both plans and figure out the most efficient way for them to facilitate the rollover at this time,” says Kaellen Hessel of the Oregon ABLE Savings Plan.
Moving money from a 529 to an ABLE can be particularly helpful for families that started saving for a child’s college in a 529 but now aren’t sure if the child will go to college because of a disability.
By rolling over money from the 529 to the ABLE, they can use it tax-free at any time for a wide range of qualified expenses to help the child maintain or improve his or her health, independence and quality of life. The money in the account doesn’t affect eligibility for most government disability benefits, and up to $100,000 doesn’t count toward the $2,000 asset limit for Supplemental Security Income Benefits.
Not everyone with a disability qualifies for an ABLE account, however. Beneficiaries can be any age, provided they developed a qualifying disability before age 26. They also must meet the disability requirements of either Supplemental Security Income or Social Security Disability Insurance. Or they must submit a “disability certification” from a physician confirming that they meet the functional disability criteria.
Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.