ABLEAmerica® tax information

Learn about the deductibility of ABLEAmerica contributions, gift tax guidelines and tax reporting for qualified and nonqualified distributions.

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Tax reporting and deadlines

There is no deadline. However, contributions count as gifts in the year they are made. Therefore, a contribution must be made by December 31 to count as a gift for that year.

Contributions, rollovers and transfers made in the previous calendar year are reported on Form 5498-QA. The Form 5498-QA is sent in March each year.

Note: These tax forms are not available online.

Distributions are reported on Form 1099-QA. A copy of Form 1099-QA is mailed to the account owner by January 31 of the year following the distribution, and the information is also reported to the IRS and the Social Security Administration (SSA).

Deductibility and gift limits

No, contributions to ABLEAmerica accounts are made with after-tax dollars. Earnings, however, can grow free from federal income tax.

The state of Virginia permits a Virginia individual income tax deduction for contributions to accounts. The amount deducted on any individual income tax return in any taxable year is generally limited to $2,000 per account. States other than Virginia have different approaches to offering state-based benefits, such as state tax deductions, to residents investing in ABLE programs.

Yes, contributions to ABLEAmerica accounts are considered gifts by the IRS and may be subject to gift taxes. Consult a tax advisor for more information about gift taxes.

An ABLEAmerica account owner may be changed at any time. If the transfer of ownership is to an individual other than an eligible individual and a member of the previous account owner’s family, there may be tax consequences. Your client should consult with a tax advisor to confirm eligibility and to discuss tax implications.

Note: Individuals are allowed to maintain only one ABLE account nationwide.

Common questions

A qualified distribution is used to pay for expenses incurred by an account owner that relate to maintaining or improving their health, independence or quality of life.

Generally, these expenses include, but are not limited to:

Education
Housing
Transportation
Employment training and support
Assistive technology and personal support services
Health
Prevention and wellness
Financial management and administrative services
Legal fees
Expenses for oversight and monitoring
Funeral and burial expenses
Other expenses the IRS identifies

The ABLEAmerica authorized representative or account owner is responsible for confirming an expense is considered qualified. For more information about expenses the IRS considers to be qualified, review IRS Publication 907, Tax Highlights for Persons With Disabilities.

If distributions are used for purposes other than qualified disability expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.

Distributions are considered nonqualified if the assets are used for purposes other than to pay for eligible expenses as defined by the IRS. When a nonqualified distribution is taken:

The principal (contribution amount) is not subject to taxes or penalties
The earnings are subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax

The 10% federal tax penalty does not apply in the following situations:

When excess contributions are returned before the due date of the account owner’s tax return (including extensions)
Distributions are taken after the account owner’s death

Refer to the ABLEAmerica Program Description for additional information.

No, withholding cannot be taken for any federal or state tax penalties.

Rollovers must be completed within 60 days of the initial distribution to retain the tax-free treatment of the rollover. Consult a tax advisor regarding the tax consequences of any transfer or rollover.

Note: Rollovers between ABLEAmerica accounts for the same account owner are limited to one every 12-month period. Since account owners are allowed to maintain only one ABLE account nationwide, the owner must close their previous ABLE account after they have rolled over its assets to the new ABLE account.

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

For additional information on strategy changes, including exceptions to the two strategy changes per year rule, refer to ABLEAmerica strategy changes.

Excess amounts must be returned back to the original contributor with all net income attributable to those contributions on or before the account owner’s tax return deadline for the year of the excess. Otherwise, account owners are subject to a 6% excise tax on:

Excess contributions
Corresponding earnings

Submit a letter of instruction with the following:

Title: ABLEAmerica Excess Removal Request
Account number
Name of ABLEAmerica account owner
Amount of excess (full or partial) to be removed and tax year
Funds from which the excess contribution and earnings must be removed
Signature of account owner or authorized representative*

*If the excess was due to a contribution from anyone other than the account owner or authorized representative, in addition to the information above, provide the contributor’s name, address, Social Security number (SSN) and signature.

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For financial professionals only. Not for use with the public.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only.

The guidelines and procedures provided in the Account Resource Center may not apply to networked accounts or accounts not directly held by American Funds. The guidelines and procedures provided also apply only to those retirement accounts or Coverdell ESAs invested in American Funds with Capital Bank and Trust Company (CB&T) as custodian. The guidelines and procedures provided in the Account Resource Center do not apply to plans held in our retirement plan solutions — PlanPremier, PlanPremier-TPA or RecordkeeperDirect. Information on the Account Resource Center may change periodically, and previously printed information may not be current. Please refer to capitalgroup.com for the most current information available.

Financial professionals should always contact their back office to determine if there are any restrictions on the use of American Funds products, tools, services, websites and literature.

This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.

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ABLEAmerica® tax information

Tax reporting and deadlines

Deductibility and gift limits

Common questions

Return to ABLEAmerica >

Contact us

Have questions or need additional support?
Contact us 8:00 a.m. to 7:00 p.m. ET, Monday through Friday.

(800) 421-0180

Investments

RESOURCES & RESEARCH

PORTFOLIO SOLUTIONS

MORE OFFERINGS

OUR APPROACH

Insights

Capital Ideas Pro™: Access to special events, courses and consulting to help you grow.

CATEGORIES

FEATURED

LEARNING CENTER

Tools & Resources

CLIENT ACCOUNT SUPPORT

INVESTMENT TOOLS

RETIREMENT PLANS

About Us

ABLEAmerica® tax information

Tax reporting and deadlines

What is the tax deadline for ABLEAmerica contributions?

How are contributions reported to the Internal Revenue Service (IRS)?

How are distributions reported to the IRS?

Deductibility and gift limits

Are there any federal tax deductions for contributions?

Are there any state tax deductions for contributions?

Are contributions to ABLEAmerica accounts subject to gift tax limits?

What are the tax implications of changing an account owner?

Common questions

What is considered to be a qualified distribution from an ABLEAmerica account?

What are the tax consequences of a nonqualified distribution from an ABLEAmerica account?

Will American Funds withhold for federal or state tax penalties when a nonqualified distribution is taken?

What are the tax implications of a rollover from another ABLE plan?

What are the tax implications of exceeding the two ABLEAmerica account strategy changes allowed by the IRS during one calendar year?

What are the tax implications for excess ABLEAmerica contributions?

What are the requirements to correct an excess contribution?

Return to ABLEAmerica >

Contact us

Have questions or need additional support? Contact us 8:00 a.m. to 7:00 p.m. ET, Monday through Friday.

(800) 421-0180

Capital Ideas Pro™:Access to special events, courses and consulting to help you grow.

Have questions or need additional support?
Contact us 8:00 a.m. to 7:00 p.m. ET, Monday through Friday.