- Section 529A ABLE (Achieving a Better Life Experience Act of 2014) accounts resemble Section 529 plans for funding education expenses (also known as qualified tuition programs, or QTPs). ABLE accounts allow for accumulation of assets within the account up to $100,000 without impacting the beneficiary’s eligibility for Supplemental Security Income (SSI), and accumulation of assets within the account up to the state’s 529 plan contribution ceiling without impacting the beneficiary’s Medicaid eligibility. While account contributions are not deductible for income tax purposes, growth of assets within the account is tax deferred and distributions are received tax free when used to pay for qualified disability expenses. To the extent that distributions are not used to pay for qualified disability expenses, the earnings portions of those distributions are included as ordinary income and subject to an additional 10% tax penalty. Notably, a beneficiary must have experienced onset of disability prior to age 26 to establish an ABLE account, although the SECURE 2.0 Act of 2022 raises this age cutoff effective January 1, 2026, to onset of disability prior to age 46. While ABLE accounts are simpler and less costly to establish and administer than special needs trusts, the ABLE account beneficiary retains control over all account assets, whereas assets held within special needs trusts are managed by one or more trustees. Remaining assets held within an ABLE account upon death of the beneficiary are potentially subject to estate recovery (“payback”) by state governments to the extent that state funds have been expended for medical assistance (i.e., Medicaid) on behalf of the decedent.
- Special needs trusts may be established by a grantor during life (inter vivos) or upon a grantor’s death (testamentary) to preserve eligibility of a special needs beneficiary for federal and state benefit programs, ensure management of trust assets by one or more trustees, and direct distributions from the trust for the benefit of a special needs beneficiary. Common options include first party special needs trusts (self-settled trusts, funded from the beneficiary’s own assets), third party special needs trusts (family trusts, funded by assets transferred from a third party grantor), and pooled trusts (funded as first party or third party trusts) professionally administered by nonprofit organizations. Notably, assets retained within first party special needs trusts upon death of the beneficiary are potentially subject to estate recovery (“payback”) by state governments to the extent that state funds have been expended for medical assistance (i.e., Medicaid) on behalf of the decedent, prior to ultimate disposition of remaining trust assets to remainder beneficiaries. Similar estate recovery provisions may apply to pooled trusts to the extent that assets are not retained within the trust by the administering nonprofit organization for the benefit of other special needs beneficiaries.
- Government benefit programs potentially available to individuals with special needs: Medicaid, Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI).
- Custodial accounts may be considered for minor children with special needs: UTMA and UGMA accounts.
Comparing wage and benefit offerings between for-profit and governmental employers
Employers and business owners engaged in for-profit enterprises are afforded greater latitude in selecting and implementing retirement planning solutions than those in the governmental and
Bentley Makkar
December 14, 2024
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