ABLEAmerica tax information
Learn about the deductibility of ABLEAmerica® contributions, gift tax guidelines, tax reporting for distributions and more.
Tax reporting and deadlines
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. Form 5498-QA is sent in March each year.
Note: Tax forms for tax year 2023 and prior aren’t available online.
Distributions are reported to investors on Form 1099-QA. 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.
Deductibility, tax credits and gift taxes
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. Consult a tax advisor for state-specific details.
Yes, eligibility for the nonrefundable Saver’s Credit is based on the designated beneficiary’s age, filing status and modified adjusted gross income (MAGI).
The credit rate available is based on the participant’s MAGI and is between 10% and 50% of the contribution. In 2024 and 2025, the maximum contribution amount that may qualify for the credit is $2,000 ($4,000 if married filing jointly), making the maximum credit $1,000 ($2,000 if married filing jointly). Refer to Retirement Savings Contributions Credit (Saver’s Credit) for more information.
Yes, contributions to ABLEAmerica accounts are considered gifts by the IRS and may be subject to gift taxes. The amount the IRS permits to be excluded from the gift tax during a given year is based on the contributor’s tax-filing status. The gift tax exclusion limits for 2025 are:
Tax-filing status |
2024 limits |
2025 limits |
|---|---|---|
Single |
$18,000 |
$19,000 |
Married filing jointly |
$36,000 |
$38,000 |
Consult a tax advisor regarding your client’s specific situation.
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 1 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, federal or state taxes for penalties cannot be withheld.
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 1 every 12-month period. Since account owners are allowed to maintain only 1 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 2 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 2-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 and signature.
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