ABLE Accounts and Special Needs Trusts: What to Know

[Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.]

Helping someone financially without causing them to lose federal benefits can be complicated. One commonly suggested solution is the creation of a Special Needs Trust, but it is not the only option available.

Another option is an ABLE account, named for the Achieving a Better Life Experience Act, which became law in 2014. ABLE accounts are designed to allow individuals with disabilities to receive financial support without disqualifying them from certain federal benefits.

In one response, a guardian of a disabled adult explained that Special Needs Trusts are not always as safe as ABLE accounts. Some benefit qualification forms specifically ask whether an individual is the beneficiary of any trust, which can create problems. ABLE accounts include legal protections that prevent them from being treated as a disqualifying factor for benefits. These accounts are sponsored by states. In this case, a Virginia-based ABLEnow account was chosen for a Massachusetts resident to avoid potential issues. A larger account was also created to hold estate assets and funnel funds into the ABLE account, since annual contributions are limited by the IRS gift cap.

ABLE accounts offer several key benefits. Funds in the account do not count against income or asset limits for Supplemental Security Income and Medicaid. The law originally required that a qualifying disability begin before age 26, but that age limit will expand to 46 starting in 2026. These accounts are similar to 529 college savings plans, with tax-free growth and tax-free withdrawals for qualified expenses. Earnings grow tax-deferred, and withdrawals used for qualified disability expenses are tax-free. Friends, family members, and the account owner can contribute. Funds may be used for disability-related needs, including housing, education, and health care, without affecting eligibility for Medicaid or SSI, as long as the account balance remains below $100,000.

ABLE accounts are offered through state-sponsored plans, such as ABLEnow in Virginia, and individuals are not required to enroll in their home state’s plan. Contributors may want to confirm whether contributions qualify for a state income tax deduction.

For more information see Michelle Singletary “The Color of Money,” a column through the Washington Post.