Education IRA 529 Plans

The subject of Education Savings Accounts or Education IRAs comes up from time to time. These are also known as 529 plans.

Funds in these accounts are excluded from the bankruptcy estate unless they were placed in the account within 365 days from the filing of the bankruptcy.

If the funds were placed in the account between 365 days and 720 days (a little under 2 years) before filing bankruptcy then the exclusion is limited to $5,475 per beneficiary.

Also in order to be excluded the beneficiary must be the child, stepchild, grandchild or stepgrandchild of the debtor.

The funds are only exempt to the extent that they don’t exceed the amounts that you are allowed to contribute to the plans under the tax law.

Even if some of the funds are not excluded from your estate under the above rules they may be exempt under the wild card exemption.

Even though the funds in the 529 plan may be excluded from the bankruptcy estate you still need to list it as an asset in schedule B. But then cite the code section that excludes it from the estate. 11 U.S.C. Sec. 541(b)(5)