ABLE Accounts and Special Needs Trusts
Special Needs Trusts and ABLE saving accounts are used to provide financial support for individuals with special needs, while protecting their ability to receive means-tested government benefits like SSI or Medicaid.
ABLE Accounts Basics
Achieving a Better Life Experience (ABLE) accounts are like IRAs for individuals with special needs, available to those whose disability began before age 26. Almost all states have ABLE account programs, and most allow people from any state to open an account. However, state tax deductions may only be available if the account is opened in the state where the individual with special needs lives.
The person with special needs, friends, family, or a Special Needs trust may contribute up to a total of $19,000 per year in 2025 to an ABLE account. An individual with special needs who works but is not enrolled in their employer’s retirement plan can make additional contributions, depending on the account’s rules.
Funds in an ABLE account are to be used for Qualified Disability Expenses (QDEs). This includes education, housing, transportation, employment training, assistive technology and personal support services. QDEs may also be used for a vacation, a cell phone, or the purchase of a home. Funds may not be used for luxury goods, gifts to others, or expenses incurred before the ABLE account was established.
Penalties for misuse of ABLE funds are steep: a federal tax penalty of 10% plus income taxes. The state will recapture any state benefits received from the contributions, and eligibility for federal benefits may be put at risk. The ABLE account also requires a Medicaid payback provision upon the death of the owner.
Special Needs Trusts
Special Needs Trusts (SNTs) are used to allow a person with special needs to own assets, while protecting their eligibility to receive government benefits. Like ABLE accounts, there are restrictions on the value of the trust and how assets may be used. SNTs are usually created by parents or family members to safeguard the quality of life for an individual with special needs after the parents have passed away.
Each state has its own rules for SNTs. However, assets in an SNT may not be used for basic costs of living, like food, rent, or utilities. Funds may not be withdrawn and simply given to the beneficiary. The trustee can pay for household furnishings, a car, clothing, durable medical equipment, therapy, medication, tuition, books, care management and taxes. The SNT funds can also be used for funeral and burial arrangements.
The SNT must be reported to the Social Security Administration if the person receives SSI, with a cover letter explaining the nature of the trust, declaring it is not an available asset for SSI purposes and sent by certified mail with proof of delivery.
If the trust is funded by the individual with special needs (a first-party trust), there are likely to be limits to contributions. If others fund the trust (a third-party trust), there may be no cap on contributions. In many states, third-party trusts must include a Medicaid payback provision upon the death of the individual.
Which is Better?
While the ABLE account is simple to set up and manage, there are contribution limits to consider. The ABLE account enables more independent management by the individual with special needs. A Special Needs Trust can be considerably larger, but a trustee oversees the funds. Having both may offer the best solution for the individual’s financial well-being.
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