What happens if the beneficiary is no longer eligible for an account?
If a beneficiary no longer meets eligibility requirements, they (or their Authorized Legal Representative) should log into their account and go to Account Settings to update their eligibility. Their account will remain open, and they can continue to use the account. However, withdrawals made at a time the beneficiary is no longer eligible will be treated as non-qualified withdrawals for tax and means-tested benefits purposes. The earnings portion of non-qualified withdrawals is subject to income taxation and a 10% federal tax penalty, and non-qualified withdrawals may affect eligibility for Supplemental Security Income (SSI) and other federal benefits.
After the end of the year in which eligibility ceases, no new contributions (including automatic transfers) will be allowed. The account will close if all the money is withdrawn.
If the beneficiary becomes eligible again, they can sign into the account’s settings and update their eligibility. If the account has been closed, simply give us a call and we’ll walk you through the process to get it reestablished. Reach us Monday through Friday, at 1-800-439-1653 from 7am-6pm MT.