ABLE Accounts and Special Needs Trusts for Medicare Savings Programs

Medicare beneficiaries who have disabilities can protect their savings and maintain Medicare Savings Program eligibility using ABLE accounts and special needs trusts. Under Section 529A of the Internal Revenue Code and SSA POMS SI 01130.740, funds deposited into a qualified ABLE account are completely excluded from the MSP asset test, allowing individuals to build financial security without risking QMB or SLMB benefits.

ABLE accounts and trust exemptions at a glance

• ABLE account balances up to $100,000 are completely disregarded for SSI and Medicaid-related programs.
• Eligibility for ABLE accounts requires that disability onset occurred before age 26 (expanding to age 46 in 2026).
• First-party special needs trusts established under 42 U.S.C. 1396p(d)(4)(A) protect personal assets and settlements.
• Third-party supplemental needs trusts allow family members to leave inheritances without disqualifying an enrollee.

How ABLE accounts protect Medicare beneficiaries

The Achieving a Better Life Experience (ABLE) Act established tax-advantaged savings accounts for individuals with significant disabilities. Money saved in an ABLE account grows tax-free and does not count toward the $9,950 individual asset limit for Medicare Savings Programs.

Withdrawals from an ABLE account are not counted as income when used for qualified disability expenses. Permitted expenses include housing, basic living costs, assistive technology, personal care attendants, accessible vehicle modifications, education, and out-of-pocket healthcare expenses.

Special needs trusts explained

When an individual receives a large financial settlement or inheritance that exceeds ABLE contribution limits, special needs trusts provide legal protection:

1. First-party trusts: Created with the beneficiary’s own funds (such as a personal injury settlement). Under federal law, assets held in an irrevocable first-party trust do not count toward MSP resource limits, but the trust must contain a state Medicaid payback clause upon death.
2. Third-party trusts: Established by parents, relatives, or loved ones using their own money. These trusts provide supplemental support for the beneficiary during life and distribute remaining funds to family heirs upon death without a Medicaid payback requirement.
3. Pooled trusts: Managed by non-profit organizations that pool individual sub-accounts for investment purposes while maintaining separate beneficiary records.

Practical guidelines for maintaining eligibility

Trust distributions must never be paid directly as cash to the beneficiary. Instead, the trustee should pay vendors directly for goods and services. Direct payments for medical copayments, phone bills, clothing, and recreation do not count as cash income under SSI-related rules.

To learn more about disability-based Medicare rules, review our guide on MSP for beneficiaries under 65 with a disability or test your eligibility using our free tool.

Frequently asked questions