ABLEAmerica® strategy changes
ARTICLE TAKEAWAYS
- What constitutes a strategy change
- The types of transactions that are considered to be strategy changes
- Tax implications and exceptions
An ABLEAmerica strategy change is a change in investment allocation that generally occurs without any tax reporting. The Internal Revenue Service (IRS) permits two strategy changes per calendar year in ABLEAmerica accounts.
Transactions that are considered to be strategy changes
- One-time exchanges or multiple exchanges that are performed on the same calendar date
- One-time rebalances
- Adding an automatic exchange or rebalance plan to an existing funded account
- Updating or removing an automatic exchange or rebalance plan after it has drafted at least once
Tax implications
If an investor makes more than two strategy changes in the same calendar year, they are treated as distributions. They are reported on Form 1099-QA and can be:
- Viewed as nonqualified distributions
- Subject to applicable taxes and penalties
Exceptions
The IRS permits the following exceptions to the two strategy changes per year rule. Funds can be reallocated, even if two have already occurred in the current calendar year, when:
- Automatically rebalancing
- Transferring from program to program (ABLE to ABLE). This change is limited to once every 12 months.
- Changing the account owner
Since account owners are allowed to maintain only one ABLE account nationwide, after the transfer, the owner should close the previous ABLE account.
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