ABLE Accounts vs. special needs trusts: which is right for your family?

In 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act, creating tax-free savings accounts designed to help individuals with disabilities cover qualified expenses. These accounts, known as ABLE accounts, are relatively new, and many families wonder whether they should rely on a special needs trust, an ABLE account, or perhaps both.

This post takes a closer look at whether ABLE accounts can serve as a sufficient alternative to special needs trusts. Please note: this article is for general informational purposes only and should not be relied upon as legal advice. If you or a loved one are considering a special needs trust or ABLE account, it’s important to consult with a qualified attorney.

What Is an ABLE Account?

An ABLE account is a tax-advantaged savings account for individuals with disabilities. Established under Section 529A of the Internal Revenue Code, it functions much like a 529 education savings plan. The key benefit is that money saved in an ABLE account does not affect most federally funded need-based benefits, and investment growth is tax-free when used for qualified disability expenses.

To qualify, an individual’s disability must have begun before age 26. Starting in 2026, this age threshold will increase to 46, expanding eligibility. Like 529 plans, ABLE accounts are administered by states. While you can open an account in any state, choosing one in your state of residence may provide additional tax credits or deductions.

Contributions can come from anyone—including family members, friends, or even a special needs trust (SNT)—as long as annual deposits do not exceed the federal limit. Currently, that limit is $19,000 per year. Disabled individuals who are employed and not participating in an employer-sponsored retirement plan may contribute more. Additionally, funds from a 529 education plan can be rolled over into an ABLE account.

The definition of qualified disability expenses is interpreted broadly by the IRS. These may include:

• Education (e.g., tuition, tutoring, or adaptive learning tools)

• Housing (such as rent, mortgage payments, or property taxes)

• Transportation (like accessible vehicles or public transit passes)

• Assistive technology and personal support services (for example, a wheelchair or adaptive software)

• Health and wellness expenses (including medical care, therapy, or specialized equipment not covered by Medicaid)

  
  

What Is a Special Needs Trust?

A special needs trust (SNT) is a specific type of trust designed to allow a disabled individual to receive an inheritance or settlement without losing eligibility for means-based public benefits such as Medicaid or Supplemental Security Income (SSI).

There are three main types of special needs trusts:

• Third-party special needs trusts: Funded by someone other than the beneficiary, such as a parent or grandparent. For example, a grandparent might set up a trust as part of their estate plan to ensure their grandchild with a disability can receive an inheritance without jeopardizing public benefits.

  
  

• First-party special needs trusts: Funded with the disabled individual’s own assets (such as a personal injury settlement or savings). These must be created before the beneficiary turns age 65. Importantly, they must include provisions requiring the trust to reimburse Medicaid for benefits paid during the beneficiary’s lifetime.

  
  

• Pooled trusts: A type of first-party SNT managed by a nonprofit organization. Funds from multiple beneficiaries are “pooled” together for investment purposes, while each beneficiary maintains a separate account. This option can be especially useful for individuals who may not have enough assets to justify creating a standalone trust.

SNTs are irrevocable, meaning they cannot be undone once established. The trustee has total discretion over how funds are distributed, and payments must supplement—not replace—public benefits. For example, a trustee might use trust funds to pay for therapies, adaptive equipment, or recreational activities that improve quality of life but are not covered by government programs.

Is an ABLE Account an Alternative to Special Needs Trusts?

To many, ABLE accounts may seem like a simpler and more affordable option compared to the more complex, and often more costly, SNT. For many families, the idea of setting up a trust can feel daunting. In practice, however, it is often advantageous to have both an ABLE account and an SNT to maximize the benefits each provides.

Key Limitations of ABLE Accounts

While ABLE accounts offer flexibility, they come with restrictions not applicable to SNTs:

• Annual contribution limit: Contributions are capped at the federal gift tax exclusion, which is $19,000 in 2025. If an individual expects an inheritance or settlement larger than this, an SNT will be necessary.

  
  

• Account balance limits: In Pennsylvania, the total balance of an ABLE account cannot exceed $511,758. More importantly, any balance over $100,000 is considered a countable resource for Supplemental Security Income. For example, if an ABLE account grows to $120,000, SSI benefits could be reduced.

These limits may not affect individuals who receive smaller inheritances (e.g., less than $19,000) or who regularly use funds for qualified disability expenses. But for those receiving larger lump sums, an SNT is essential.

Why Both Can Be Beneficial

Even when an SNT is required, having an ABLE account alongside it can provide unique advantages:

Greater independence: An ABLE account allows beneficiaries with the capacity to manage money responsibly to exercise more direct control. For example, a beneficiary might use their ABLE account to pay for everyday expenses like rent or transportation without waiting for trustee approval or disbursement. However, ABLE account access should be considered carefully, as some individuals with intellectual disabilities may be vulnerable to undue influence or financial exploitation.

Housing expenses: Using ABLE account funds for housing can be especially strategic. If housing costs are paid from an SNT, they are treated as “in-kind support and maintenance,” which reduces SSI benefits. Payments from an ABLE account, however, do not reduce SSI. In essence, if a beneficiary’s SSI payment is insufficient to cover rent, drawing from their ABLE account avoids penalties.

Pennsylvania-Specific Benefits: Pennsylvania offers additional advantages:

No Medicaid payback requirement at the beneficiary’s death.

State tax benefits, including deductions for contributions.

No Pennsylvania inheritance tax on ABLE account funds.

Conclusion

An ABLE account can be an attractive alternative to a special needs trust for disabled individuals who qualify and are unlikely to exceed the annual contribution limit or the $100,000 SSI resource ceiling. For example, someone receiving modest gifts or smaller inheritances may find that an ABLE account alone meets their needs while preserving benefit eligibility.

For others—such as those receiving a settlement or inheritance larger than $19,000—an ABLE account cannot fully replace an SNT. In these cases, using both tools together often provides the best outcome. An ABLE account can offer the beneficiary greater independence and direct control over certain expenses, while the SNT ensures that larger sums are managed responsibly and without jeopardizing public benefits.

By combining the strengths of each, families can create a balanced plan:

·       ABLE accounts for everyday expenses like transportation or assistive technology.

·       SNTs for managing larger inheritances or settlements, with trustee oversight and long-term protection.

Together, these tools can help safeguard benefits while empowering individuals with disabilities to live with greater stability and independence.

Ready to Plan for the Future?

If you’re considering an ABLE account, a special needs trust, or both, the right choice depends on your unique circumstances. I help families navigate these options with clarity and compassion, ensuring that benefits are protected while independence is supported. Call today to schedule a consultation and explore the best planning tools for your loved one’s future.