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The ABLE Account, formally called “An Achieving a Better Life Experience (ABLE) Account,” has received a lot of publicity. What are the differences between an ABLE Account and a special needs trust? Should a parent use an ABLE account instead of a special needs trust? This article will answer those questions.
Similar to the College Savings plan (or 529 accounts), An Achieving a Better Life Experience (ABLE) Account (also called a 529A account) is a tax-advantaged account that an individual can use to save funds for disability-related expenses. The account's beneficiary must be blind or disabled by a condition that began before the individual’s 26th birthday. (Beginning in 2026, the onset of disability age requirement will increase to before age 46.) Social Security does not count the assets in the ABLE account as a resource of the individual if the balance is $100,000 or less. After the designated beneficiary's death and payment of any outstanding disability expenses, any funds remaining in the ABLE account are used to reimburse the state(s) for certain Medicaid benefits the designated beneficiary received.
Any person can contribute to an ABLE account. (“Person,” as defined by the Internal Revenue Code, can also include a trust.) However, the IRS limits the total annual contributions that any ABLE account can receive from all sources to the amount of the per-donee gift-tax exclusion in effect for a given calendar year. In 2023, for example, that limit is $17,000. If a person with a disability works, they can contribute extra from their earnings.
Here’s an example: Suppose your daughter works at a supermarket for $400 monthly. Your child wants to save $4,000 to pay for orthodontic care. Your child cannot own more than $2,000 in her name and still qualify for SSI payments. What do you do? Your child can transfer the money into an ABLE account, which will not count toward the $2,000 resource requirement for SSI and Medicaid.
The ABLE account is helpful in other ways: If the child inherits a small inheritance, it can be transferred into an ABLE account to preserve eligibility for SSI or Medicaid. Also, importantly, the ABLE account empowers the person with a disability to manage their own money without losing SSI or Medicaid.
An ABLE account can be a handy element in your estate plan for your child, but it is not a substitute for a third-party supplemental needs trust. Here’s why:
In sum, for the long-term security of your child with a disability, you want to create a third-party special needs trust. The ABLE account is more of a specialized tool in your tool kit. It’s beneficial if your child needs to transfer their accumulated work earnings into an ABLE to stay under the $2,000 SSI resource limit. The ABLE Account also lets you put some money into the account, so your child has some extra discretionary spending money.
The ABLE Account, formally called “An Achieving a Better Life Experience (ABLE) Account,” has received a lot of publicity. What are the differences between an ABLE Account and a special needs trust? Should a parent use an ABLE account instead of a special needs trust? This article will answer those questions.
Similar to the College Savings plan (or 529 accounts), An Achieving a Better Life Experience (ABLE) Account (also called a 529A account) is a tax-advantaged account that an individual can use to save funds for disability-related expenses. The account's beneficiary must be blind or disabled by a condition that began before the individual’s 26th birthday. (Beginning in 2026, the onset of disability age requirement will increase to before age 46.) Social Security does not count the assets in the ABLE account as a resource of the individual if the balance is $100,000 or less. After the designated beneficiary's death and payment of any outstanding disability expenses, any funds remaining in the ABLE account are used to reimburse the state(s) for certain Medicaid benefits the designated beneficiary received.
Any person can contribute to an ABLE account. (“Person,” as defined by the Internal Revenue Code, can also include a trust.) However, the IRS limits the total annual contributions that any ABLE account can receive from all sources to the amount of the per-donee gift-tax exclusion in effect for a given calendar year. In 2023, for example, that limit is $17,000. If a person with a disability works, they can contribute extra from their earnings.
Here’s an example: Suppose your daughter works at a supermarket for $400 monthly. Your child wants to save $4,000 to pay for orthodontic care. Your child cannot own more than $2,000 in her name and still qualify for SSI payments. What do you do? Your child can transfer the money into an ABLE account, which will not count toward the $2,000 resource requirement for SSI and Medicaid.
The ABLE account is helpful in other ways: If the child inherits a small inheritance, it can be transferred into an ABLE account to preserve eligibility for SSI or Medicaid. Also, importantly, the ABLE account empowers the person with a disability to manage their own money without losing SSI or Medicaid.
An ABLE account can be a handy element in your estate plan for your child, but it is not a substitute for a third-party supplemental needs trust. Here’s why:
- With an ABLE Account, on the death of your child, the state may file a claim against any remaining money in the account for cost-of-care or Medicaid waiver services during your child’s lifetime. That means the state can seize money that you (the parent) contribute to the ABLE account;
- With an ABLE account, you cannot put more than $100,000 into the account. When assets in the account total $100,000, Social Security suspends your child’s SSI benefits. However, your child can continue to receive Medicaid up to the state limit, which varies from state to state;
- With an ABLE account, there are restrictions on how the money can be spent;
- With an ABLE account, there is no trustee or custodian;
- Only individuals whose disability was established before age 26 can set up an ABLE account. (Beginning in 2026, the onset of disability age requirement will increase to before age 46.)
- With an ABLE account, you can only contribute cash. For example, the ABLE account cannot hold title to real estate;
- With an ABLE account, there is a limit on how much money you can deposit per year;
- With an ABLE account, you have less ability to manage the investments in the ABLE account;
In sum, for the long-term security of your child with a disability, you want to create a third-party special needs trust. The ABLE account is more of a specialized tool in your tool kit. It’s beneficial if your child needs to transfer their accumulated work earnings into an ABLE to stay under the $2,000 SSI resource limit. The ABLE Account also lets you put some money into the account, so your child has some extra discretionary spending money.