Thinking About Moving Your Child’s 529 College Savings Into an ABLE Account? Read This First
Written by: Connor Kavanaugh, Special Needs Planner
Updated December 4th, 2025
You did everything right. The moment your child arrived, you opened a 529 College Savings Plan—because planning ahead felt like the responsible thing to do. But life can take unexpected turns. If your child later receives a disability diagnosis, you might now be wondering whether those funds would be more helpful in an ABLE account.
The good news: thanks to the Tax Cuts and Jobs Act of 2017, families can roll over funds from a 529 plan into an ABLE account without triggering taxes or penalties. This rule opened the door for families who want savings to better align with their child's long-term needs.
But before you make the switch, it's important to understand how 529 plans and ABLE accounts differ—and the implications of shifting funds.
How 529 Plans and ABLE Accounts Are Similar
Both accounts share several tax benefits:
• Contributions grow tax deferred
• Withdrawals are tax free when used for qualified expenses
• Investment earnings are never taxed when used properly
But that’s where the similarities end.
529 Plans: Built for Education
529 College Savings Plans are designed to cover qualified education expenses such as:
• Tuition
• Books and supplies
• Room and board (for eligible students)
• Vocational programs
• Some K–12 expenses
Contribution limits are very high and vary by state—often exceeding $200,000. Unused 529 funds may also be rolled into certain Roth IRAs starting in 2024 under new federal rules, subject to strict limits.
ABLE Accounts: Built for Disability-Related Expenses
ABLE accounts exist for an entirely different purpose—to support individuals with disabilities in maintaining independence, safety, and quality of life. Qualified disability expenses include:
• Housing and utilities
• Transportation
• Employment and job training
• Assistive technology
• Health and wellness
• Personal support services
• Education, if applicable
Some states (including Oregon) offer tax incentives for contributions, and earnings remain tax free when withdrawals are used appropriately.
However, ABLE accounts have strict eligibility and contribution rules:
• The individual’s disability must have begun before age 46 starting January 1st, 2026.
• Total annual contributions are capped ($19,000 in 2025, plus potential ABLE-to-Work contributions)
• SSI eligibility is suspended if the account balance exceeds $100,000
• Some states require Medicaid payback at death—although Oregon does not
These rules make ABLE accounts powerful but also delicate tools.
Should You Roll Over 529 Funds to an ABLE Account?
It depends on your goals.
The rollover limit is equal to the annual ABLE contribution limit—meaning you can only move up to the yearly maximum into the ABLE account, including contributions from all sources. Larger 529 balances may take multiple years to transfer, or a rollover may not be the best strategy at all.
Key considerations include:
• Will the ABLE account be used for ongoing housing or day-to-day expenses?
• Will a rollover affect the beneficiary’s SSI eligibility?
• Would leaving the funds in the 529 (for education, training, or future Roth transfer eligibility) create more long-term flexibility?
• Does your state offer tax benefits for maintaining or contributing to either account type?
Because ABLE accounts interact directly with SSI and Medicaid, mismanagement can jeopardize benefits. Careful coordination is essential.
Tax Rules for Non-Qualified Withdrawals
Whether funds are in a 529 or an ABLE account, non-qualified withdrawals trigger taxes and penalties on the earnings portion of the withdrawal:
• 10 percent penalty
• Ordinary income tax
• Possible recapture of state tax deductions or credits
Using funds for the wrong expenses can create costly surprises.
The Bottom Line: Don’t Move 529 Funds Without a Strategy
Transferring 529 funds to an ABLE account can be incredibly helpful—but it isn’t always the right move. The decision depends on the beneficiary’s long-term needs, benefit eligibility, and planned use of the funds.
If you’re considering a transfer, consult your special needs planning team. The right strategy can maximize tax benefits, protect eligibility for programs like SSI and Medicaid, and ensure your child’s savings support their independence and quality of life.
Palladio Consulting LLC is here to help you compare options and design the most effective plan for your family.