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The newsletter articles on this page provide valuable information on timely and interesting financial issues across a variety of subject areas, including retirement, investments, personal finance, annuities, insurance, taxes, college, and government benefits.


   
The Importance of Saving for Retirement at a Young Age
Five Things to Know About Inherited IRAs
What is an ABLE account?
Is an ABLE account subject to federal tax?
Cartoon: Money Monsters
Four Lessons Grandparents and Grandchildren Can Learn Together
Projecting a Happy Retirement
Should You Buy or Lease Your Next Vehicle?
Should I pay off my student loans early or contribute to my workplace 401(k)?
Common Questions About Student Loan Repayment


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Is an ABLE account subject to federal tax?

Assets in an ABLE account for a disabled person are generally not subject to federal income tax. And ABLE account distributions for qualified disability expenses of the designated beneficiary are also free of federal income tax. However, the earnings portion of distributions from an ABLE account in excess of qualified disability expenses is generally included in the gross income of the designated beneficiary (and subject to an additional 10% tax unless the distribution is made on or after the death of the designated beneficiary).

During his or her lifetime, the designated beneficiary can change the designated beneficiary of the ABLE account without federal tax consequences, provided that the new beneficiary is his or her sibling who was also disabled before age 26. The designated beneficiary can also roll over a distribution to another (or the same) ABLE account of the designated beneficiary or an eligible brother or sister without tax consequences if the rollover is completed within 60 days. If rolled over to a new account of the same beneficiary, the old account must close. Only one rollover is permitted to any ABLE account of the same designated beneficiary within a 12-month period. An ABLE program may also allow direct program-to-program transfers as a way to change state programs or the designated beneficiary.

If the beneficiary ceases to be disabled, the ABLE account continues to be treated as qualified. However, no new contributions can be made to the account, and distributions from the account are not treated as qualified for tax purposes. If the disability resumes, contributions can start back up (subject to the limits on contributions), and distributions can once again be treated as qualified.

Upon the death of the beneficiary, the ABLE account balance is included in his or her gross estate for federal estate tax purposes. Amounts paid from the account for outstanding qualified disability expenses, and to a state for claims under its Medicaid program, may be deductible for federal estate tax purposes.

ABLE accounts are relatively new, and you need to check which states currently have ABLE programs and for any special tax treatment that might apply under state law.

 
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 *"Securities and Investment Advisory Services offered through KCD Financial, Inc., Member FINRA & SIPC. Securities are offered in Maryland, Virginia, Pennsylvania, New Jersey and North Carolina. For the residents of the other states, information provided here is for educational purpose only."

This communication is strictly intended for individuals residing in the state(s) of MD, NJ, NC, PA and VA. No offers may be made or accepted from any resident outside the specific states referenced.
 


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