ABLE Account Decision Guide Series

Understanding ABLE Accounts, Special Needs Trusts and Pooled Trusts

Do taxes matter to you?

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ABLE Account

Savings in the ABLE account grow tax-free unlike an SNT or PT and there may be federal tax deductions or tax credits for ABLE deposits which may result in greater savings. An example is the federal Savers Credit  or other tax credits for saving money in an ABLE account. This means that you may receive a federal income tax refund for employment earnings saved in the ABLE account. The tax refund may also be saved in the ABLE account. Review the webinar, ABLE Tax Time Tips.

There may also be state tax credits or deductions available to you which could lower your taxable income or provide an income tax refund.

Contributions to an ABLE account are not tax deductible for federal taxes.

Special Needs Trust (SNT) or Pooled Trust (PT)

A SNT or PT can be taxed at a higher rate than an ABLE account which grows tax free. You may wish to make your decision on which account – or whether several types of accounts—will be set up to best meet your needs.

While a SNT or PT may have to file a federal income tax return if it has an individual tax identification number or ITIN with $1 or more in income, an ABLE account owner may or may not have to file a federal tax return simply because they have ABLE investment earnings.

A third-party special needs trust or PT account is eligible for a Qualified Disability Trust (QDT) exemption which in 2022 is $4,400.

Contributions to a SNT or PT are not tax deductible.

If paying taxes is not a concern, review this decision guide for other factors and review the ABLE Account, Special Needs and Pooled Trust Comparison Chart to determine whether an ABLE account, a Special Needs Trust, or a Pooled Trust—or whether all three—best meet your needs.

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Note: Our ABLE Decision Guide Series is designed as an aid to decision making as it relates to establishing and using an ABLE account. This document does not cover every possible issue related to the topic and is not a substitute to more in-depth analysis that may be required in some cases.