In recent years, 529 plans and ABLE accounts have become popular tools for families to save and invest for higher education and disability-related expenses, respectively. While they serve different purposes, there are instances where individuals may consider transferring funds from a 529 plan to an ABLE account, especially if the beneficiary has special needs. If you’re a resident of Pennsylvania and you’re wondering how to navigate this process, you’re in the right place. Here, we will walk you through the process, step-by-step, on how to roll over funds from a 529 plan into a Pennsylvania ABLE account.
Understanding the Basics
Before getting started with the rollover process, it’s important to understand the fundamental differences between a 529 plan and an ABLE account. A 529 plan is designed to save for qualified education expenses, such as tuition, housing, books, and other fees. On the other hand, an ABLE (Achieving a Better Life Experience) account is specifically created to help individuals with disabilities and their families save for disability-related expenses while maintaining eligibility for certain means-tested government programs.
Step 1: Evaluate Your Situation
Assess your unique situation to determine whether rolling over funds from a 529 plan to a Pennsylvania ABLE account is the right decision for your family. Consider the needs of the individual with disabilities and whether the ABLE account’s flexibility in using funds for disability-related expenses aligns with those needs.
Step 2: Check Eligibility
Ensure that the individual with disabilities meets the eligibility criteria for opening an ABLE account in Pennsylvania. Generally, the onset of the disability must have occurred before the age of 26 and be documented through a diagnosis from a qualified healthcare professional.
Step 3: Open an ABLE Account
If the individual meets the eligibility criteria, it is time to proceed with opening an ABLE account with the Pennsylvania ABLE Savings Program. This can typically be done online through the program’s website. Gather necessary documentation, such as proof of residency, identity, and disability information, to complete the application.
Step 4: Understand Rollover Rules
Familiarize yourself with the specific rollover rules set by the Internal Revenue Service (IRS) for 529 plans and ABLE accounts. Account owners may roll over 529 College and Career Savings funds to ABLE accounts, up to the ABLE annual contribution limit ($17,000 in 2023). You can process a rollover from a 529 account into a PA ABLE account owned by you or a member of your family. In order for the rollover to be protected from state and federal taxes, funds must be received by the ABLE account within 60 days of the withdrawal from the 529 plan.
Step 5: Initiate the Rollover
Contact the administrator of the 529 plan from which you wish to roll over funds. By requesting a direct rollover to the Pennsylvania ABLE account, the funds will be directly transferred without triggering any tax consequences. Provide the necessary account information and follow the procedures outlined by the 529 plan administrator.
Step 6: Complete the Rollover
Once the rollover request is initiated, monitor the process closely to ensure that the funds are transferred accurately to the Pennsylvania ABLE account. It’s advisable to maintain records of all correspondence and transactions for future reference.
Step 7: Utilize ABLE Funds Wisely
After the rollover is successfully completed, the funds will be available in the Pennsylvania ABLE account. Use the funds for qualified disability-related expenses, which can include education, housing, transportation, healthcare, and more. Keep in mind that using the funds for non-qualified expenses could result in tax penalties.
The option to roll over funds from a 529 plan to a Pennsylvania ABLE account presents a significant opportunity for individuals with disabilities and their families to enhance their financial flexibility and to secure a better future by unlocking the ability to cover a broad range of disability-related expenses, while still maintaining eligibility for government benefits. As families navigate the intricacies of disability planning, it is important to consult with a professional who is knowledgeable in the field, such as an attorney or financial advisor, to ensure the unique needs and goals of your family are met while abiding by the rules of rollovers.
At Antanavage Farbiarz, we offer expert legal services tailored to fit your family’s unique needs. Want to learn more about disability planning? Call (610) 562-2000 or use our contact form to schedule an appointment with one of our experienced attorneys.