ABLE Account

Section 529A(e)(2)(A) defines the term disability certification as, with respect to an individual, a certification to the satisfaction of the Secretary by the individual or the parent or guardian of the individual that certifies that the individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, or is blind within the meaning of section 1614(a)(2) of the Social Security Act, and that such blindness or disability occurred before the date on which the individual attained age 46. The certification also includes a copy of the individual's diagnosis relating to the individual's relevant impairment or impairments, signed by a physician meeting the criteria of section 1861(r)(1) of the Social Security Act.

Section 529A(e)(2)(B) provides that no inference may be drawn from a disability certification for purposes of establishing eligibility for benefits under title II, XVI, or XIX of the Social Security Act.

Section 529A(e)(3) defines the term designated beneficiary, in connection with an ABLE account established under a qualified ABLE program, as the eligible individual who established an ABLE account and is the owner of such account.

As of January 1, 2026, recent changes increased the age of disability onset from 26 to 46 years old. While an individual of any age may own an ABLE account, the beneficiary of the account, the account owner, must have incurred a qualifying blindness or disability before becoming 46 years old. An ABLE account must be opened in the name of the individual who has a disability. Section 124(b) of title I of division T of Public Law 117-328 provides that the amendments made by that section apply to taxable years beginning after December 31, 2025.

Opening an ABLE Account

An eligible individual who is 18 years or older may open an ABLE account or select someone to assist them in opening the account. If an eligible individual is a minor or an adult without the legal capacity to enter into contracts, the ABLE account may be opened by one of the following individuals in order of priority: an agent under power of attorney, a legal guardian or conservator, a spouse, a parent, a sibling, a grandparent, or a representative payee.

Most states have established ABLE programs, and many ABLE programs are open to both in-state residents and out-of-state residents.

What Section 529A Requires of a Qualified ABLE Program

Section 529A(a) provides that a qualified ABLE program shall be exempt from taxation under subtitle A of the Internal Revenue Code. Notwithstanding the preceding sentence, such a program shall be subject to the taxes imposed by section 511, relating to imposition of tax on unrelated business income of charitable organizations.

Section 529A(b)(1) defines the term qualified ABLE program as a program established and maintained by a State, or agency or instrumentality thereof, under which a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for such taxable year, to an ABLE account which is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, which limits a designated beneficiary to 1 ABLE account for purposes of the section, and which meets the other requirements of the section.

Section 529A(b)(2) provides that a program shall not be treated as a qualified ABLE program unless it provides that no contribution will be accepted unless it is in cash. Section 529A(b)(3) provides that a program shall not be treated as a qualified ABLE program unless it provides separate accounting for each designated beneficiary.

Section 529A(b)(4), titled Limited investment direction, provides that a program shall not be treated as a qualified ABLE program unless it provides that any designated beneficiary under the program may, directly or indirectly, direct the investment of any contributions to the program, or any earnings thereon, no more than 2 times in any calendar year.

Section 529A(b)(5), titled No pledging of interest as security, provides that a program shall not be treated as a qualified ABLE program if it allows any interest in the program or any portion thereof to be used as security for a loan.

Section 529A(b)(6), titled Prohibition on excess contributions, provides that a program shall not be treated as a qualified ABLE program unless it provides adequate safeguards to prevent aggregate contributions on behalf of a designated beneficiary in excess of the limit established by the State under section 529(b)(6). For purposes of that sentence, aggregate contributions include contributions under any prior qualified ABLE program of any State or agency or instrumentality thereof but do not include any contributions received in a qualified ABLE rollover contribution described in section 530A(d)(4)(B).

Qualified Disability Expenses

Section 529A(e)(5) defines the term qualified disability expenses as any expenses related to the eligible individual's blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary, including the following expenses: 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, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of the section.

Qualified disability expenses are expenses used to maintain or improve the account owner's "health, independence, or quality of life." Qualified disability expenses are broadly defined and may include expenses related to education, food, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management, administrative services and other expenses.

Contributions

Section 529A(b)(2) provides that, except in the case of contributions under subsection (c)(1)(C) or received in a qualified ABLE rollover contribution described in section 530A(d)(4)(B), a program shall not accept a contribution to an ABLE account if the contribution would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the sum of two amounts. The first amount is the amount in effect under section 2503(b), determined by substituting 1996 for 1997 in paragraph (2)(B) of that section, for the calendar year in which the taxable year begins. 

The second amount applies in the case of any contribution by a designated beneficiary described in paragraph (7), and is the lesser of compensation, as defined by section 219(f)(1), includible in the designated beneficiary's gross income for the taxable year, or an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins.

Section 529A(b)(2) adds that rules similar to the rules of section 408(d)(4), determined without regard to subparagraph (B) of that section, apply for purposes of the paragraph. It also provides that a designated beneficiary, or a person acting on behalf of the beneficiary, shall maintain adequate records for purposes of ensuring, and shall be responsible for ensuring, that the requirements of subparagraph (B)(ii) are met.

Section 529A(b)(7)(A) provides that a designated beneficiary described in paragraph (7) is an employee, including an employee within the meaning of section 401(c), with respect to whom no contribution is made for the taxable year to a defined contribution plan, within the meaning of section 414(i), with respect to which the requirements of section 401(a) or 403(a) are met, no contribution is made for the taxable year to an annuity contract described in section 403(b), and no contribution is made for the taxable year to an eligible deferred compensation plan described in section 457(b). Section 529A(b)(7)(B) provides that the term poverty line has the meaning given such term by section 673 of the Community Services Block Grant Act.

A recent feature of ABLE accounts known as the Able to Work provision allows an ABLE account owner who works and does not have any contributions to an employer's retirement plan, such as a 401(k), to contribute additional money beyond the annual contribution limit.

Section 529A(c)(2)(A) provides that, for purposes of chapters 12 and 13 of the Internal Revenue Code, any contribution to a qualified ABLE program on behalf of any designated beneficiary shall be treated as a completed gift to such designated beneficiary which is not a future interest in property, and shall not be treated as a qualified transfer under section 2503(e). Section 529A(c)(2)(B) provides that in no event shall a distribution from an ABLE account to such account's designated beneficiary be treated as a taxable gift. Section 529A(c)(2)(C) provides that the taxes imposed by chapters 12 and 13 shall not apply to a transfer by reason of a change in the designated beneficiary under subsection (c)(1)(C).

Investment Options and Access to Funds

As with most 529 plans, an account owner can typically choose among several investment options with an ABLE account, which may include mutual funds and money market funds. An account owner may also be able to allocate funds to savings or checking options insured by the Federal Deposit Insurance Corporation. Funds may be accessed through checks, ABLE prepaid spending cards or automated teller machines. It is important to understand one's goals and expected uses for the money in an ABLE account when making investment choices.

Section 529A(b)(4) limits how often the investment of contributions may be directed. A designated beneficiary may, directly or indirectly, direct the investment of any contributions to the program, or any earnings thereon, no more than 2 times in any calendar year.

Tax Treatment

Contributions are not tax deductible for federal income tax purposes, but investments can grow tax free and remain so when withdrawn and used for qualified disability expenses. Earnings in an ABLE account are not subject to federal income tax or state income tax if the withdrawals are used for qualified disability expenses. However, if a person withdraws money from an ABLE account and does not use it on a qualified disability expense, the funds generally will be subject to income tax and an additional 10 percent federal tax penalty on the earnings portion of the withdrawal.

Section 529A(c)(1)(A) provides that any distribution under a qualified ABLE program shall be includible in the gross income of the distributee in the manner as provided under section 72 to the extent not excluded from gross income under any other provision of chapter 1 of the Internal Revenue Code. Section 529A(c)(1)(B) provides that, for purposes of that paragraph, if distributions from a qualified ABLE program do not exceed the qualified disability expenses of the designated beneficiary, no amount shall be includible in gross income, and in any other case the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such expenses bear to such distributions.

Section 529A(c)(3)(A), titled Additional tax for distributions not used for disability expenses, provides that the tax imposed by chapter 1 for any taxable year on any taxpayer who receives a distribution from a qualified ABLE program which is includible in gross income shall be increased by 10 percent of the amount which is so includible. Section 529A(c)(3)(B) provides that subparagraph (A) shall not apply if the payment or distribution is made to a beneficiary, or to the estate of the designated beneficiary, on or after the death of the designated beneficiary.

Section 529A(c)(3)(C), titled Contributions returned before certain date, provides that subparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of the designated beneficiary if such distribution is received on or before the day prescribed by law, including extensions of time, for filing such designated beneficiary's return for such taxable year, and such distribution is accompanied by the amount of net income attributable to such excess contribution. Any net income described in that provision shall be included in gross income for the taxable year in which such excess contribution was made.

Rollovers and Changes of Beneficiary

Section 529A(c)(1)(C), titled Change in designated beneficiaries or programs, contains three rules. Under clause (i), subparagraph (A) shall not apply to any amount paid or distributed from an ABLE account to the extent that the amount received is paid, not later than the 60th day after the date of such payment or distribution, into another ABLE account for the benefit of the same designated beneficiary or an eligible individual who is a member of the family of the designated beneficiary. Under clause (ii), any change in the designated beneficiary of an interest in a qualified ABLE program during a taxable year shall not be treated as a distribution for purposes of subparagraph (A) if the new beneficiary is an eligible individual for such taxable year and a member of the family of the former beneficiary. Under clause (iii), clause (i) shall not apply to any transfer if such transfer occurs within 12 months from the date of a previous transfer to any qualified ABLE program for the benefit of the designated beneficiary.

Section 529A(e)(4) defines the term member of the family, with respect to any designated beneficiary, as an individual who bears a relationship to such beneficiary which is described in section 152(d)(2)(B), and provides that a rule similar to the rule of section 152(f)(1)(B) shall apply.

Savings in a 529 account may be rolled over into an ABLE account subject to the annual contribution limit. The 529 account must be for the same beneficiary as the ABLE account or for a member of the same family as the ABLE account owner.

Federal Benefits and the Medicaid Claim

Contributions from third parties to an ABLE account, qualified rollovers from other ABLE accounts, withdrawals for qualified disability expenses, and assets in an ABLE account are generally disregarded for the purposes of means-tested federal benefits. Additionally, for the purposes of determining eligibility for Supplemental Security Income, ABLE account balances up to one hundred thousand dollars are excluded as resources of the individual. However, qualified distributions from ABLE accounts for housing expenses that are not used during the month they are withdrawn will count towards the resource limit for Supplemental Security Income.

Upon the death of the beneficiary, outstanding qualified disability expenses, including funeral and burial expenses, are paid from the ABLE account. After that, a state may make a claim against remaining funds in the account for Medicaid benefits received by the beneficiary that took place after the ABLE account was opened. Several states have enacted legislation that limit Medicaid payback for their state's residents.

Section 529A(f), titled Transfer to State, provides that, subject to any outstanding payments due for qualified disability expenses, upon the death of the designated beneficiary, all amounts remaining in the qualified ABLE account not in excess of the amount equal to the total medical assistance paid for the designated beneficiary after the establishment of the account, net of any premiums paid from the account or paid by or on behalf of the beneficiary to a Medicaid Buy-In program under any State Medicaid plan established under title XIX of the Social Security Act, shall be distributed to such State upon filing of a claim for payment by such State. For purposes of that paragraph, the State shall be a creditor of an ABLE account and not a beneficiary. Section 529A(c)(3) shall not apply to a distribution under the preceding sentence.

Fees

It is important to understand the fees and expenses associated with an ABLE account because they may lower investment returns. ABLE programs may charge account maintenance and service fees. Some state plans will waive or reduce some of these fees if the account owner maintains a specified account balance, chooses electronic delivery of statements, or resides in the state sponsoring the ABLE account. An account owner may also be charged asset management fees. In addition, each investment option generally has fees and expenses associated with the mutual funds and other underlying investments in which it invests. An account owner should carefully review the fees of the underlying investments because they are likely to be different for each investment option. Fees are outlined in each state plan's offering circular.

Reports Required by Section 529A

Section 529A(d)(1) provides that each officer or employee having control of the qualified ABLE program or their designee shall make such reports regarding such program to the Secretary and to designated beneficiaries with respect to contributions, distributions, the return of excess contributions, and any other topics the Secretary may require.

Section 529A(d)(3) provides that a qualified ABLE program shall submit a notice to the Secretary upon the establishment of an ABLE account, and that the notice shall contain the name of the designated beneficiary and such other information as the Secretary may require.

Section 529A(d)(4) provides that, for purposes of section 103 of the Stephen Beck, Jr., ABLE Act of 2014, States shall submit electronically on a monthly basis to the Commissioner of Social Security, in the manner specified by the Commissioner, statements on relevant distributions and account balances from all ABLE accounts.

ABLE Accounts and Securities Law

The letter dated March 31, 2016 is titled Interests in ABLE Accounts. It was written by the Director of the Office of Municipal Securities of the SEC to the Chief Legal Officer of the MSRB, and it refers to a letter from the MSRB. The letter says: "We have not conducted an extensive review of ABLE Programs."

Based upon an analysis of programs that have been brought to the staff's attention in the MSRB's letter and in other communications with the staff of the MSRB, the letter expresses the staff's belief that at least some interests in ABLE accounts as described in the MSRB's letter may be municipal securities as defined in Section 3(a)(29) of the Securities Exchange Act of 1934, depending on the facts and circumstances, including without limitation, the extent to which an ABLE account offered through an ABLE Program is a direct obligation of, or obligation guaranteed as to principal or interest by, a State or any agency or instrumentality thereof.

Based upon the MSRB's letter and communications with MSRB staff, the letter records the staff's understanding that interests in ABLE Programs generally are offered only by direct purchase from the issuer, and the letter says the staff would view those interests as having been sold in a primary offering as that term is defined in Rule 15c2-12. If a dealer is acting as an underwriter, as that term is defined in Rule 15c2-12, in connection with that primary offering, the dealer may be subject to the requirements of Rule 15c2-12.

MSRB Rule D-12 provides that the term municipal fund security shall mean a municipal security issued by an issuer that, but for the application of Section 2(b) of the Investment Company Act of 1940, would constitute an investment company within the meaning of Section 3 of the Investment Company Act of 1940.

ABLE Accounts in FINRA's Examination Outline

The content outline for the Securities Industry Essentials examination carries a 2025 copyright held by FINRA. Section 2 of the outline is titled Understanding Products and Their Risks, and its sub-section 2.1 is titled Products. Topic 2.1.5, Municipal Fund Securities, lists 529 plans, prepaid tuition, savings plans, local government investment pools, and ABLE accounts. It also lists knowledge of municipal fund securities, owner versus beneficiary, restricted use of plan assets, tax advantages, and direct or adviser sold. The MSRB rules in the Section 2 rules list include Rule D-12, titled Definition of Municipal Fund Securities. Candidates should check the current outline before the examination.

Common Misunderstandings

The corrections below come from Section 529A of the Internal Revenue Code, the ABLE bulletin and MSRB Rule D-12.

An ABLE account is limited to education expenses. Qualified disability expenses are not limited to education. They include education, housing, transportation, employment training and support, assistive technology, personal support services, health, prevention and wellness, financial management, administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.

The age of disability onset is 26. Section 529A(e)(1) refers to age 46, and as of January 1, 2026, recent changes increased the age of disability onset from 26 to 46 years old.

Contributions to an ABLE account are deductible. Contributions are not tax deductible for federal income tax purposes, but investments can grow tax free and remain so when withdrawn and used for qualified disability expenses.

Every withdrawal is free of tax. If a person withdraws money from an ABLE account and does not use it on a qualified disability expense, the funds generally will be subject to income tax and an additional 10 percent federal tax penalty on the earnings portion of the withdrawal.

A person may hold several ABLE accounts under a qualified ABLE program. Section 529A(b)(1) describes a program which limits a designated beneficiary to 1 ABLE account for purposes of the section.

The person who contributes owns the account. Section 529A(e)(6) defines an ABLE account as an account owned by the eligible individual, and Section 529A(e)(3) defines the designated beneficiary as the eligible individual who established the account and is the owner of the account.

A state has no claim on the funds after the account owner dies. Section 529A(f) provides that, upon the death of the designated beneficiary, remaining amounts in the account, not in excess of the total medical assistance paid for the designated beneficiary after the establishment of the account, net of the premiums described in the section, shall be distributed to the State upon filing of a claim for payment by such State.

The investment of contributions may be redirected as often as the account owner wishes. Section 529A(b)(4) limits direction of the investment of contributions, or any earnings thereon, to no more than 2 times in any calendar year.

A program may accept any form of contribution. Section 529A(b)(2) provides that no contribution will be accepted unless it is in cash.

ABLE programs are open only to residents of the sponsoring state. Many ABLE programs are open to both in-state residents and out-of-state residents.

Key Points

Section 529A(e)(6) defines an ABLE account as an account established by an eligible individual, owned by such eligible individual, and maintained under a qualified ABLE program.

Section 529A(e)(1) requires that blindness or disability have occurred before the individual attained age 46, or that a disability certification be filed with the Secretary.

Section 529A(e)(5) defines qualified disability expenses as expenses related to the eligible individual's blindness or disability, including education, housing, transportation, and the other categories the section lists.

Contributions are not tax deductible for federal income tax purposes, and earnings are not subject to federal income tax or state income tax if withdrawals are used for qualified disability expenses.

Section 529A(c)(3)(A) increases the tax on a distribution includible in gross income by 10 percent of the amount so includible.

The content outline for the Securities Industry Essentials examination lists ABLE accounts under topic 2.1.5, Municipal Fund Securities.