Note: this article is not intended to provide investment, legal, tax, or accounting advice. Before making decisions with investing, legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation.

If you serve individuals living with disabilities, you know that Special Needs Trusts (SNTs) are essential tools to help beneficiaries protect assets while maintaining eligibility for important public benefits. And as laws evolve – like the passing and updating of the SECURE Act – so too do the strategies that fiduciaries consider when managing these trusts.

First passed in 2019, the Setting Every Community Up for Retirement Enhancement “SECURE” Act was enacted to help Americans prepare for retirement and save for the future. Then, in 2022, the updated SECURE Act 2.0 introduced measures that directly impacted individuals with disabilities and the professionals who manage their finances and oversee the SNTs and other accounts that support them. Understanding these changes is crucial for fiduciaries seeking to ensure that trusts continue to meet the evolving needs of individuals with disabilities. 

We’ve written before about one of the most influential provisions of SECURE Act 2.0 for SNTs which helped maximize the use of inherited IRAs for beneficiaries. The Act’s 2022 updates clarified that individuals with disabilities can continue to stretch distributions over their lifetime rather than being subject to the standard 10-year rule. In this post we’ll walk through other SECURE Act 2.0 provisions that recently went into effect (or are on the horizon) and how these could impact how you serve clients with disabilities and their families.   

Changes Impacting Special Needs Planning

1. Increase in the Required Minimum Distribution (RMD) Age
One of the most significant updates is the gradual increase in the age at which retirement account owners must begin taking Required Minimum Distributions (RMDs). In 2024 the RMD age increased to 73 (up from 72 in 2023), allowing more time for tax-deferred growth. (And for individuals born in 1960 or later, the RMD age will rise again to 75 in 2033.)

Impact on SNTs:This extended timeline may allow those funding SNTs – often family members of loved ones with disabilities – to accumulate more assets in their retirement accounts, which can be directed into the trust upon their passing. Fiduciaries should assess how any additional funds might ultimately affect the trust’s management and distribution plans, ensuring they align with the beneficiary’s unique needs and long-term financial plans.

2. 529 Plan to Roth IRA Rollovers
Starting in 2024, individuals can rollover unused funds from a 529 education savings plan into a Roth IRA, under specific conditions:

• A lifetime rollover limit of $35,000 applies.
• The 529 plan must have been open for at least 15 years.
• Rollovers cannot exceed the annual Roth IRA contribution limits.

Impact on SNTs:For families with a 529 plan for a child with disabilities who didn’t use all – or any – of these funds for education, this rollover option provides a tax-free way to transfer excess savings into a Roth IRA for future use. While Roth IRAs are typically used to save for retirement, their tax-free growth and withdrawal benefits can also make them valuable tools for funding an SNT for the next generation. Fiduciaries will need to coordinate these rollovers carefully to ensure they fit within the overall financial plan and benefit structure for the individual.

3. Charities as Remainder Beneficiaries of SNTs
SECURE Act 2.0 included the clarification that a Special Needs Trust can name a charitable organization as a remainder beneficiary without triggering the 10-year payout rule typically applied to inherited retirement accounts.

Impact on SNTs:This change can offer greater flexibility in estate planning, allowing families to support both their loved one with a disability and their philanthropic interests. Disabled beneficiaries can continue to receive distributions over their lifetime without the need to accelerate withdrawals to use up funds. However, caution is recommended when naming charities as reminder beneficiaries as private foundations and other disqualified organizations could result in the loss of favorable tax treatment.

4. Expanded Eligibility for ABLE Accounts
While not directly tied to RMD rules, SECURE Act 2.0 expands eligibility for ABLE (Achieving a Better Life Experience) accounts. Starting in 2026, individuals who become disabled before age 46 (up from the current age 26) will qualify for these tax-advantaged savings accounts.

Impact on SNTs:Trustees might consider using ABLE accounts alongside SNTs to enhance financial flexibility, offering beneficiaries easier access to funds for everyday expenses while maintaining government benefits eligibility.

Why These Changes Matter for Special Needs Planning

Understanding and leveraging these updates into special needs planning can be helpful for fiduciaries who want to help their clients: 

• Minimize tax burdens. Delayed RMDs and new contribution opportunities can optimize distributions and reduce unnecessary tax liabilities.
• Maximize savings opportunities. Options like 529-to-Roth rollovers provide families with more flexibility in long-term financial planning.
• Protect benefits eligibility. As always, proper structuring of retirement accounts and trust distributions is essential to help preserve access to government benefits programs.

At True Link, we understand the complexities of managing SNTs and the critical role fiduciaries play in safeguarding the financial future of individuals with disabilities. By staying informed about these changes and their implications, you can help support your clients’ financial wellbeing, ensuring that the plans and financial instruments you have in place continue to meet their evolving needs.

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