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ABLE Accounts, which are tax-advantaged savings accounts for individuals with disabilities and their families. Income earned by ABLE accounts are not taxed and contributions to the account can be made by individuals, family members and friends.
Raising a child with a disability often comes with significant costs. Public benefits, such as SSI and Medicaid, often require that your child have less than $2000 in assets in order to maintain eligibility. An ABLE account generally will not impact your child's eligibility for these benefits.
The ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26 years of age.
Qualified disability-related expenses are allowable under ABLE accounts. They include:
There are several differences between ABLE accounts and special needs trusts. Both have advantages in their own respects. Here are a few aspects you should consider:
Impact on public benefits
Both ABLE accounts and special needs trusts help protect individuals from the loss of public benefits, such as SSI. However, once an ABLE account reaches over $100,000, Social Security benefits would be suspended. Additionally, contributions to an ABLE account are limited to $15,000 per year. Special needs trusts may have unlimited gifts made to the account with no impact on benefits.
The cost to set up and administer a special needs trust can range anywhere from $1000-$5000. Additionally, there are many legal complexities that are added with a special needs trust. ABLE accounts, by contrast, can be set up with fewer financial resources and restrictions.
Income generated by an ABLE account is tax-free if used for qualified disability expenses. Earnings and income generated by a special needs trust and not paid out during the accounting year are subject to trust tax rates.
Ownership of the account
ABLE accounts are owned by the beneficiary of the account. Special needs trusts, by contrast, is owned by a family member or a designee.
Individuals with significant disabilities with an age of onset before 26 are eligible for ABLE accounts. Special needs trusts have no age or disability requirements.
ABLE accounts must be used for "qualifying disability expenses". These include:
Special needs trusts, by contrast, can be used for a wider variety of expenses.
Visit the National ABLE Resource Center for more information and to begin planning today.