According to the ABLE National Resource Center:
When the account owner passes away, the funds in the ABLE account can be used for outstanding qualified disability expenses (QDE), including funeral and burial expenses. The ABLE plan can advise you on what information is needed such as a special form, a death certificate or a document appointing the executor or administrator of the deceased account owner’s estate. Medicaid may request reimbursement for Medicaid expenses paid since the ABLE account was opened. This practice is sometimes called Medicaid claw back or Medicaid payback. ABLE account owners who did not use Medicaid are not subject to Medicaid payback. Any premiums the person paid for a Medicaid Buy in Program are deducted from the payback balance. Some states do not support Medicaid payback. ABLE plans’ Medicaid payback policies are listed within the ABLE Plan Comparison Tools. The ABLE account owner may appoint a successor designated beneficiary to inherit the ABLE account assets upon their death. Transfer to the successor designated beneficiary or rollover into their ABLE account is made after the payment of outstanding QDEs, reimbursement of state Medicaid claims and estate taxes. When no successor designated beneficiary is named, any remaining funds are payable to the estate and will be distributed according to the last will and testament.
It sounds like you are trying to report the distribution on the beneficiary's final tax return, which would not be the proper way to handle it of the distribution was made after the beneficiary passed away. I recommend you contact the administrator of the ABLE plan for guidance on how to handle the situation.
The steps for reporting a non-qualified distribution from an ABLE Account that is not subject to a penalty are:
- Make sure you are logged in and in your return
- On the left-hand side of the screen, select Tax Tools
- From the drop down, select Tools
- Click on Topic Search
- Type in "1099-QA"
- On the screen with "ABLE account distributions included in income", enter the amount of ABLE account earnings distributed (from 1099-Q)
- On the next screen, "Able distributions not subject to penalty" enter the same amount you entered on the previous screen
- The amount of the earnings will be reported as Other Income on Schedule 1 (1040)
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