Explore Medicaid savings accounts that let you build wealth without losing government benefits.
Families caring for individuals with disabilities often worry that saving money for a disabled loved one will cause them to lose benefits like Supplemental Security Income (SSI) and Medicaid.
Special Needs Trusts (SNTs) and Achieving a Better Life Experience (ABLE) accounts are two powerful Medicaid planning tools that help Iowans achieve this goal.
Both options protect government benefits while allowing you to build savings, but they work differently and serve distinct purposes.
Understanding SNTs With Unlimited Savings
Special Needs Trusts serve as legal arrangements that protect assets from counting against Medicaid's means-tested benefit calculations.
Professional management
When you establish an SNT, you create a fiduciary relationship where a trustee manages funds for your loved one's benefit without affecting their eligibility for public benefits.
The trustee agreement provides professional and ethical oversight for ensuring fiduciaries use and distribute appropriately.
Unlimited asset funding
This arrangement offers unlimited asset contribution potential, making SNTs ideal for inheritance planning when grandparents or other family members want to leave substantial gifts.
SNT agreement options
Two main types of special needs trust agreements exist:
- First-party SNTs (self-settled): Funded with the beneficiary's own assets.
- Third-party SNTs: Funded by anyone except the beneficiary.
Medicaid planners must establish first-party SNTs before the beneficiary turns 65, while third-party trusts have no age restrictions.
Setting up these trusts requires working with an Iowa special needs planning attorney who understands the complex regulations governing disability benefits and Iowa trust administration.
ABLE Tax-Free Savings Accounts Explained
ABLE accounts represent a newer approach to disability savings, functioning as 529A tax-advantaged savings vehicles.
These accounts give beneficiaries direct control over their funds, promoting financial independence and personal choice.
Age requirements
Your loved one must have experienced disability onset before age 26 to qualify, though this rule expands to age 46 in 2026.
ABLE statutes created these accounts to provide people with disabilities access to tax-free savings without complicated trust structures.
Contribution limits in Iowa
Annual contributions are limited to $19,000 from all combined sources. However, working beneficiaries who don't participate in employer retirement plans can contribute an additional $15,060 from their earnings.
Special state perks
Iowa's IAble program sweetens the deal with state income tax deductions up to $5,500 for contributions.
Setting up an IABLE account takes less than 30 minutes online, compared to the weeks or months required for trust creation.
This simplicity makes ABLE accounts an attractive first step in Iowa Medicaid planning.
Annual Caps vs Unlimited Funding
Contribution limits represent one of the most significant differences between ABLE accounts and SNTs.
ABLE accounts restrict total yearly contributions, but SNTs face no annual or lifetime contribution restrictions. This unlimited capacity makes them indispensable for large gifts or inheritances.
Practical example
An Iowa grandmother wants to leave her grandson with disabilities a $600,000 inheritance. An ABLE account can't accommodate this gift in one year, but a special needs trust can accept the entire amount immediately.
Maximum contribution
ABLE accounts also have maximum balance limits of $505,000 (IABLE). Furthermore, once the account exceeds $100,000, the state may suspend SSI benefits until the balance drops below this threshold.
Many families use both tools strategically. ABLE accounts handle recurring monthly expenses while SNTs manage large inheritances and significant purchases.
Account Control and Management
Managing ABLE accounts and SNTs is a choice between having complete control or strong protections.
ABLE management
ABLE accounts put beneficiaries in the driver's seat. Your loved one controls spending decisions directly through online access and optional debit cards. This independence allows immediate access to funds for qualified expenses without asking permission.
SNT management
SNTs operate differently. Every disbursement requires trustee approval, which can feel restrictive but provides important protection for beneficiaries who need spending oversight. Trustees ensure funds are used appropriately and last throughout the beneficiary's lifetime.
Cost considerations- ABLE account fees: $0-$56 annually
- Trustee fees: Typically 1-2% of trust assets yearly
The choice between independence and protection depends on your loved one's capacity for financial management. Some individuals thrive with the autonomy ABLE accounts provide, while others benefit from the structure and oversight of professional trust management.
Qualified Disability Expenses
Another consideration is how these accounts pay for a beneficiary’s personal needs.
ABLE coverage
ABLE accounts cover an extensive range of qualified disability expenses (QDEs), including:
- Housing, utilities, and food (without reducing SSI benefits when paid in the same month).
- Education and employment training.
- Transportation costs.
- Health, prevention, and wellness expenses.
- Legal fees and financial management services.
- Assistive technology and personal support.
- Funeral and burial expenses.
This broad coverage makes ABLE accounts versatile tools for daily living expenses.
SNT expenditures
SNTs typically can't pay directly for food and shelter without potentially reducing government benefits.
Instead, they focus on supplemental needs that enhance quality of life:
- Entertainment, vacations, and hobbies.
- Therapy and treatments not covered by Medicaid.
- Vehicle purchases and modifications.
- Technology and communication devices.
- Home furnishings and modifications.
- Pet care and companionship animals.
Smart families use both tools strategically. Pay rent and groceries from the ABLE account, then use the SNT for that Disney vacation or new adaptive vehicle.
This approach maximizes benefit protection while ensuring comprehensive support.
IAble and ABLE Alliance Tax Advantage
Iowa's IAble program offers unique tax advantages for state residents.
Recipients can take a $5,500 yearly state income tax deduction for contributions made, providing immediate tax savings that compound over time.
This benefit applies to Iowa taxpayers regardless of who owns the ABLE account.
IAble also participates in the National ABLE Alliance, bringing additional benefits:
- Professional investment management options.
- Lower fees through economies of scale.
- Proven track record of account administration.
- Multiple investment choices to match risk tolerance.
Medicaid estate recovery protection
Iowa law provides special protection for ABLE accounts regarding Medicaid estate recovery. The Iowa Department of Health and Human Services (HHS) cannot recover ABLE account funds after the owner's death unless federally required in limited circumstances.
Although SNTs don't receive state-specific tax benefits in Iowa, they remain valuable planning tools.
Estate Recovery and Medicaid Payback Provisions
Understanding payback provisions helps families plan their Medicaid needs effectively.
ABLE rules
ABLE accounts limit Medicaid payback to benefits received after the account opened. If your loved one received Medicaid for 20 years but only had an ABLE account for the last five, payback only covers those five years.
Iowa law further restricts Medicaid recovery from ABLE accounts if:
- The account owner was 55 or older at death
- Federal law requires recovery
Recovery likewise postpones if the owner leaves behind:
- A surviving spouse
- Children under 21
- Children with blindness or disabilities
SNT rules
First-party SNTs face full lifetime Medicaid payback for all benefits received. Third-party SNTs avoid Medicaid recovery entirely, making them attractive for family gifts and inheritances.
Strategic Medicaid planning considers these different payback rules when deciding how to structure savings from various sources.
Choosing Between ABLE and SNT Recap
Always start your Medicaid disability savings strategy with an ABLE account. The low barriers to entry, tax advantages, and beneficiary control make them ideal for building initial savings and managing daily expenses.
Add an SNT when:
- Expecting inheritances exceeding $19,000 annually.
- Your loved one needs spending oversight.
- Planning for long-term care needs beyond government benefits.
- Protecting large settlements or awards.
Many families successfully use both tools together, like in this real-world example:
Maude S. opened an IAble account for her son's monthly transportation and speech therapy expenses. After the grandmother passed and left the son $150,000, Maude established a third-party SNT for the inheritance. The trust now makes annual $19,000 contributions to the ABLE account while preserving the principal from the inheritance for future needs.
Always consult a special needs planning attorney when facing the complex decision of opening either an SNT or ABLE account for your loved one.
Take Action Today for Tomorrow's Security
Building financial security for your loved one with disabilities doesn't happen overnight.
Whether you choose an ABLE account, a special needs trust, or both, the important thing is starting now.
Contact the special needs planning attorneys at IowaMedicaidHelp to guide you through establishing the right combination of ABLE accounts and SNTs for your unique situation, ensuring your loved one's financial future remains secure while maintaining their independence and quality of life.