Bankruptcy and 529s (FAN Spring 2023)

Bankruptcy is a complex, nuanced process. If one of your clients is considering this option, they may have concerns about their 529 account(s).

While my529 cannot provide legal guidance, here are a few points to note.

Federal bankruptcy law protects certain 529 plan accounts if the beneficiary is the child, stepchild, grandchild or step-grandchild of the debtor. Accounts with other beneficiaries named—such as the account owner or the spouse—are not protected under federal law.

In addition, bankruptcy exemptions may vary by state. Each state may have varying protections and exemptions regarding 529 plans, the length of time the funds must be in the account, and the limit to which funds may be protected.

Should a client contact you as they weigh the benefits and consequences of bankruptcy, direct them to seek legal counsel regarding their individual situation