Can the Owner of an IRA Put It in a Self-Settled Special Needs Trust?

With proper planning, you can use a trust to supplement your disability care.

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If you become disabled and can no longer work, you may have to rely on public assistance, including Social Security disability benefits and Medicaid. A condition for receiving assistance is financial need, and you might not qualify if you have too much money. A properly drawn special needs trust, or SNT, can shelter your money so that it does not reduce your assistance.

Self-Settled Special Needs Trust

An SNT is self-settled if the trust grantor is the trust beneficiary. The trust requires a trustee to manage the assets for which the trust holds title. Only a “supplemental care” SNT shields assets from means testing for government assistance. The trustee can use this kind of SNT only to pay for the needs of the beneficiary that are not fully funded by government programs. A supplemental care SNT must be irrevocable. Upon the death of the beneficiary, any remaining assets in this SNT are first used to reimburse medical assistance providers, including Medicaid but not Social Security.

IRA Funding

According to estate-planning lawyer Natalie Choate, speaking in a 2009 "Wall Street Journal" article, you can’t place an IRA in a trust, because the Internal Revenue Service considers this a distribution and will tax you.However, you may withdraw money from your IRA and place it in the trust. You must pay taxes on withdrawals from a traditional IRA, but the IRS waives the 10 percent penalty for early withdrawals -- before age 59 1/2 -- if you are disabled. You can only add money to an SNT until you reach age 65. Any income earned by an irrevocable trust receives harsh tax treatment. As of 2013, the trust’s top tax bracket of 39.6 percent kicks in after a mere $11,950 of taxable income.


Your SNT trustee must take care not to use trust money in a way that reduces government assistance. The first step is to prepare a life care plan that estimates your needs over your expected life span. The trustee then compares those needs to the available government assistance and uses the trust’s assets to make up the difference, subject to certain limitations. While there is no problem paying for medical services not provided by government assistance, money used to pay for housing may be eligible for means testing and thus could reduce your assistance.


A trustee might make disbursements that are necessary for your well-being but nonetheless reduce your Social Security benefits. The list of such disbursements includes payments for food, mortgage, property taxes, rent and utilities. A further complication is that many states cut off Medicaid when your monthly Security disability benefits fall below $1. Another concern is having members of your family residing in your home, because Medicaid rules require you to receive the sole benefit of payments. You must therefore make your family pay its way or otherwise provide you with services beyond ones it's already legally obligated to perform.