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Tax Free Savings: First ABLE Accounts Go Live

Tax Free SavingsOn June 1, 2016, Ohio became the first state in the nation to open its ABLE account program.

This news is making national headlines because individuals from any state—including Connecticut—can go on-line and create an Ohio ABLE account that will be valid in the individual’s home state.

What are ABLE accounts?

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.

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 difference 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 $14,000. ABLE accounts are capped at holding no more than $300,000 (in Connecticut), but these accounts hold lower thresholds if an individual is on SSI. 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:
  • education
  • housing
  • transportation
  • 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
  • and other expenses the government might later identifyUnlike 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.
  1. 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.





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