ABLE Account vs Special Needs Trust: Which Is Right For Me?

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When it comes to special needs planning, there are a few different options available to parents and caregivers. Two of the most common are ABLE accounts and special needs trusts. So what’s the difference? And which is right for you and your special needs loved one(s)?

Understanding ABLE Accounts and Special Needs Trusts

ABLE accounts and special needs trusts are two popular options for individuals with disabilities and their families to save money while maintaining eligibility for government benefits. In this section, we will look into the definition and purpose of ABLE accounts and special needs trusts, eligibility and contribution limits for ABLE accounts, qualified disability expenses for ABLE accounts, and the impact on Supplemental Security Income (SSI).

Definition and Purpose of ABLE Accounts and Special Needs Trusts

ABLE accounts are tax-free savings accounts designed for individuals with disabilities to save for qualified disability expenses without jeopardizing their eligibility for government benefits. The primary purpose of an ABLE account is to provide a safe and secure way for individuals with disabilities to accumulate assets and maintain their independence.

Special needs trusts, on the other hand, are designed to hold assets on behalf of an individual with a disability, providing a way to supplement government benefits without affecting eligibility. The primary purpose of a special needs trust is to ensure that the individual with a disability has access to resources that can enhance their quality of life.

What is an ABLE account and what are the benefits of using one for qualified disability expenses?

ABLE accounts, defined as “tax-advantaged savings accounts that can fund disability expenses,” can be used for a range of “qualified disability expenses.”

These are expenditures that help the individual “in maintaining or improving his or her health, independence, or quality of life.” These can cover a computer, communication devices, education, training, financial management, support services, assistive technology, and more.

ABLE accounts can be used to pay for a wide range of expenses, including housing, education, transportation, personal care and some basic living expenses. This flexibility allows account holders to save for their long-term financial security while still being able to cover their immediate needs.

Account owners have control over the ABLE account, as opposed to a special needs trust, where the trustee makes the decisions. ABLE accounts are inexpensive and easy to set up and can be funded immediately with small amounts.

Eligibility and Contribution Limits for ABLE Accounts

To be eligible for an ABLE account, an individual must have a qualifying disability that began before the age of 26 (increasing to 46 in 2026). There is no income limit to contribute to an ABLE account, and contributions can be made by anyone, including family members, friends, or the account holder themselves. The annual contribution limit for ABLE accounts is $18,000 in 2025, and the total account balance cannot exceed $300,000 (varies by state).

Qualified Disability Expenses for ABLE Accounts

ABLE accounts can be used to pay for a wide range of qualified disability expenses, including:

  • Education and employment training
  • Assistive technology and personal care
  • Housing and transportation
  • Health and wellness expenses
  • Basic living expenses

These expenses must be related to the individual’s disability and must be incurred after the account is established.

Benefits of ABLE accounts

A major feature of an ABLE account is that it lets the individual accumulate more than $2,000 without jeopardizing means-tested benefits. ABLE account holders can keep their funds in cash, or they can invest them.

Tax advantages: Contributions to ABLE accounts are not tax deductible, but distributions used to pay for qualified disability expenses are tax-free, and the funds within the account grow tax free. This allows people with disabilities to save for their future without sacrificing their current government benefits. Additionally, the tax benefits of ABLE accounts make them an attractive option for long-term savings.

Increased savings limit: ABLE account holders can have up to $100,000 in their accounts without affecting their eligibility for Supplemental Security Income (SSI). This allows people with disabilities to save for their long-term financial security without being penalized.

Flexible use of funds: ABLE accounts can be used to pay for a wide range of expenses, including housing, education, transportation, personal care and some basic living expenses. This flexibility gives people with disabilities more control over their finances and allows them to save for their future while still meeting their current needs.

What are the disadvantages of an ABLE account?

Some disadvantages of ABLE accounts include the following:

  • Contributions are not tax deductible
  • Distributions used to pay for qualified disability expenses are tax-free, but any distributions not used for this purpose are taxed as income
  • Able account holders can have up to $100,000 in their accounts without affecting their eligibility for Supplemental Security Income (SSI)
  • Medicaid can reclaim any funds remaining in the ABLE account after the beneficiary’s death, which can impact the overall benefits of using such accounts
  • Medicaid payback is a significant consideration, as state regulations may allow Medicaid to reclaim funds from the ABLE account upon the beneficiary’s death
  • The Social Security Administration plays a crucial role in determining eligibility for benefits, and it recognizes certain conditions like autism for SSI or SSDI, which can affect the establishment and management of ABLE accounts

What is a special needs trust and what are the benefits of using one?

Special needs trusts, on the other hand, are designed to hold assets on behalf of someone with a disability. The trust can be used to pay for things like housing, transportation, education, and medical care that aren’t covered by government benefits.

Benefits of a special needs trust

  • Special needs trusts can be used to pay for things like housing, transportation, education, and medical care that aren’t covered by government benefits.
  • Trustees have control over the trust, as opposed to account holders with ABLE accounts.
  • Contributions to special needs trusts are tax deductible.
  • Distributions from special needs trusts used for qualified disability expenses are tax free.
  • Special needs trusts can be used to supplement government benefits.
  • Special needs trusts can be used to protect assets.

What are the disadvantages of a special needs trust, including Medicaid payback?

There are some disadvantages to using a special needs trust. These include the fact that you cannot control what happens with the money, and that contributions are tax deductible.

Also, any distributions not used for qualified disability expenses are taxed as income.

Finally, special needs trusts can only be used to supplement government benefits, whereas ABLE accounts can be used to pay for a wide range of expenses.

How do you decide which type of account is right for you or your loved one with special needs?

There are a few factors to consider when deciding whether an ABLE account or special needs trust is right for you or your loved one with special needs.

The first factor to consider is what the account will be used for. ABLE accounts are best for expenses that the individual with special needs will need on a regular basis, like transportation, education, and housing. Special needs trusts are better for larger expenses, like medical bills or housing costs that exceed the $2,000 limit.

The second factor to consider is eligibility. ABLE accounts are available to individuals with disabilities who have a qualifying disability. Special needs trusts can be used by anyone with a disability, regardless of income level or government benefits status.

The third factor to consider is funding. ABLE accounts can be funded immediately with small amounts of money, while special needs trusts require more planning and usually larger sums of money to get started.

Another important consideration is how ABLE accounts can impact SSI benefits. If the balance of an ABLE account exceeds $100,000, SSI benefits may be suspended until the balance is reduced. This highlights the importance of understanding how ABLE accounts and special needs trusts can work together without jeopardizing one’s eligibility for supplemental security income.

Finally, it’s important to consider who will be in charge of making financial decisions for the individual with special needs. With an ABLE account, the account holder has control over the funds and can make decisions about how they’re spent. With a special needs trust, the trustee makes all decisions about how the trust funds are used.

How to set up an ABLE account

Setting up an ABLE account is relatively easy. First, you’ll need to find an ABLE account provider. There are many providers to choose from, so do some research to find the best one for you. Next, you’ll need to provide some basic information, like your name and contact information. You’ll also need to provide proof of your disability. This can be done by providing a letter from your doctor or therapist confirming your disability. Finally, you’ll need to fund your account. You can do this by transferring money from another bank account, or by setting up recurring contributions.

How to set up a special needs trust

A special needs trust can be more complicated to set up than an ABLE account. You’ll need to find a trustee, who will manage the trust and make decisions about how the funds are used. The trustee can be a family member, friend, or professional. You’ll also need to decide how the trust will be funded. This can be done by transferring assets from another account, or by setting up regular contributions. Once the trust is funded, you’ll need to decide how it will be used. The trustee will make all decisions about how the funds are spent, but you can provide guidance on what you’d like the funds to be used for.

Learn more about Special Needs Estate Planning.

Making the decision

ABLE accounts and special needs trusts are both options available to parents and caregivers for special needs planning. ABLE accounts are a new and innovative way of giving and saving money to ensure eligibility for essential health care and financial assistance. They don’t necessarily replace special needs trusts’ role, but they offer an alternative to those managing gifts and income of less than $15,000 / year.

Special needs trusts are used to provide financial support for someone with disabilities, and they come with some benefits that ABLE accounts do not. For example, assets in a special needs trust do not count towards the $2,000 limit on assets that can be held in an ABLE account.

Deciding whether an ABLE account or special needs trust is right for you or your loved one with special needs can be a difficult decision. There are many factors to consider, and it’s important to talk to a financial advisor or attorney before making a decision. But ultimately, the decision comes down to what you want the account to be used for and who will be in charge of making financial decisions for the individual with special needs.

We can help! Book a Call with us today to get help with ABLE accounts and Special Needs Trusts.

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