A Closer Look At The PA ABLE Savings Program


Financial planning for families with special needs can be difficult. Recently, Pennsylvania launched their Achieving a Better Life Experience (PA ABLE) account to help family and friends save tax-free for an individual with qualified disabilities. Disabled individuals can benefit while still maintaining government benefits.

With a PA ABLE account, contributions and earnings from the account are tax-free. When withdrawals from the account are used for qualified expenses, the money is exempt from both federal and state income tax. Qualified expenses fall into categories such as education, housing and transportation, just to name a few.

To qualify for a PA ABLE account, an individual must be considered disabled prior to the age of twenty-six. However, each disabled person is only allowed a single PA ABLE account. A PA ABLE account can be opened by a disabled individual or for those who are unable to open one on their own, a parent, guardian or Power of Attorney can open the account.

Each PA ABLE account offers seven different investment options to choose from. Six of which are asset allocation options, which have varying blends of stocks, bonds and cash. The last option is a FDIC-insured bearing checking account with a debit card. The funds in a PA ABLE account can be allocated to any of the seven investment options. Already invested funds can be moved among different options twice a year.

The PA ABLE savings program allows for $14,000 to be contributed to the account each year. However, the account has a lifetime maximum of $511,758. Once the maximum is reached, interest can still be earned, but no additional contributions may be made. To receive supplemental security income (SSI), an individual cannot own resources worth more than $2,000. A PA ABLE account differs by funds up to $100,000 will not be counted towards the individual’s resources, therefore does not affect their SSI. 


Special Needs Trust vs. PA ABLE Savings Program

Before PA ABLE accounts, families usually put aside funds for a disabled relative through a special needs trust. When considering which option to choose, there are many factors to consider. Both options are designed to save money for beneficiaries with disabilities, without impacting their federal or state benefits. 

One benefit of a special needs trust is that an unlimited amount can be funded to a special needs trust without impacting government benefits. With a special needs trust, any income that is not paid out to beneficiaries within the accounting year is subject to trust taxes. In contrast, distributions from the PA ABLE account, including earnings, are entirely tax free when used for qualified disability expenses. However, for either option, expenditures must be for qualified expenses, but a special needs trust has a broader group of qualified expenditures.

When the disabled individual dies, the amount that is left in a PA ABLE account can be used for any outstanding qualified disability expenses, as well as funeral and burial costs. The remaining balance then becomes part of the beneficiary’s estate where only the growth of the account is subject to income tax. However, for a special needs trust, the assets at the time of death can be left to other beneficiaries. When comparing both accounts, a special needs trust can add a lot of complexity, whereas the PA ABLE accounts are more simple and do not require tax returns to be filed.

The addition of PA ABLE accounts provides another option for those who are saving for an individual with disabilities. A combination of both options can be used to maximize their benefits. The PA ABLE account allows for easy withdraws and low maintenance. Whereas special needs trusts have fewer restrictions on contributions and offer a wider range of qualified expenses. The decision of which plan may be right for you depends on each individual situation. For more information and guidance on what will be right for your family, please contact a River Wealth advisor.