For those who are new to the game, ABLE accounts are tax-free savings accounts for individuals with qualifying disabilities that began before age 26.
Created in 2014 as the ABLE Act, there are now over 20 ABLE programs to choose from and now Connecticut has its own ABLE plan!
How does an ABLE account work?
One of the hallmarks of ABLE accounts is that the funds will be exempt (just like funds are exempt in special needs trusts) from the low income and asset limits for public benefits programs—like Supplemental Security Income (SSI) and Medicaid—that many individuals with disabilities rely on for supports and services.
For a full breakdown of the rules of ABLE accounts, you can read our past blog post here.
The differences between ABLE accounts and SNTs
While ABLE accounts and special needs trusts (SNT) exempt funds so an individual with a disability financially qualifies for public benefits—they also bear a lot of differences.
Here are four key differences between ABLE accounts and special needs trusts.
(1) Control – ABLE accounts belong to the individual with a disability. Individuals with disabilities (or their parent, guardian, or agent) can open their own ABLE accounts and control how the funds are spent. On the other hand, a trustee of a special needs trust decides how to control the funds in a special needs trust.
(2) Amount of Funding – Anyone can contribute to an ABLE account, but the total yearly contributions are limited to $15,000 and up to $26,000 per year if the individual is working. ABLE accounts are capped at holding no more than $300,000 (in Connecticut), however the account will begin to affect SSI once a beneficiary has over $100,000. Unlike ABLE accounts, special needs trusts do not limit annual deposits and can hold an unlimited amount of funds.
(3) How the Funds are Used – The funds in an ABLE account must be used on “qualified disability expenses.” These expenses may include:
- employment training and support
- assistive technology and personal support services
- health, prevention and wellness
- financial management and administrative services
- legal fees
- expenses for oversight and monitoring, funeral and burial expenses
- other expenses the government might later identify
Unlike an ABLE account, the funds in a special needs trust do not need to be spent on disability-related expenses. Typically, funds in a special needs trust must be used for the benefit of the individual with a disability.
(4) Payback to State – When an ABLE account and certain types of special needs trusts terminate, whatever funds are remaining in the account must first be paid back to the state for medical costs that it paid on behalf of the individual with a disability. However, for ABLE accounts, the payback is more limited than for special needs trusts. With ABLE accounts, the state is only paid back for the monies spent from the date the account was opened.
On the other hand, for special needs trusts, the state is paid back for all monies spent on the individual. The difference in the payback to the state may make play an important role in selecting the best planning tools.