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Home » Qualified ABLE Program
A Qualified ABLE Program is a state-established initiative designed to support individuals who became blind or disabled before age 26. The program must meet strict criteria under Section 529A to maintain its “qualified” status:
States or other designated entities administer these programs, overseeing such compliance. Each distribution or termination of an account becomes the subject grant of Form 1099-QA reporting requirements from the IRS for tax implications.
ABLE accounts offer some unique tax advantages similar to those of qualified tuition programs (QTPs) under Section 529, but designed for disability-related benefits:
If an expenditure is a non-qualified expense, the earnings portion is taxable and possibly subject to a 10% additional tax, much like penalties for non-qualified 529 plan distributions. Therefore, it is critical that funds are used correctly to maintain tax benefits.
The IRS mandates detailed reporting for ABLE accounts through Form 1099-QA, which tracks distributions and terminations. This form ensures transparency and compliance with tax rules. Here’s how it functions:
Special Cases: If the designated beneficiary changes to an ineligible individual or non-family member, the fair market value (FMV) of the account on the change date is reported as a distribution in Box 1. Family members (siblings, including step- or half-siblings) qualify for tax-free beneficiary changes, and no Form 1099-QA is filed in such cases.
Due to low paper filing volumes, Form 1099-QA is available as an online fillable PDF at IRS.gov/Form1099QA. Entities filing fewer than 10 forms may submit paper copies with Form 1096, while those filing 10 or more must e-file via the IRS FIRE System.
To maintain its qualified status and tax benefits, an ABLE Program enforces specific rules:
Beneficiaries: When distributions cover QDEs, no income tax or penalty applies. Non-qualified distributions tax the earnings portion at the beneficiary’s ordinary income tax rate, plus a 10% additional tax, reported on Form 1040 or 1040-SR. Records of expenses should be retained to substantiate qualified use.
Contributors: Contributions are made with after-tax dollars and returned contributions (e.g., excess amounts) are non-taxable up to the basis. Earnings on returned contributions may be taxable if not rolled over or used for QDEs.