529 plan and bankruptcy?
Whether the account is safe in bankruptcy depends on when you established the 529 plan, who the beneficiary is, and when you deposited money into the account.
529 plans are safe only if the beneficiary was a child, stepchild, grandchild, or stepgrandchild of the debtor(you) and
- Money deposited into a 529 plan over two years prior to filing is fully protected.
- Money deposited one year or more but less than two years prior to filing is only partially protected. The first $5,000 is protected; the rest is not.
Money deposited less than one year before filing for bankruptcy is not protected. If you could not protect these funds in a bank account, then you cannot protect them in a 529 account.—(This means if you were a resident of Arizona for the past 2 years and you deposited the money in the last year it is not protected.)
You will not find a 529 plan on any list of exempt assets for Arizona. That is because it is not exempt but excluded from the bankruptcy estate altogether if A or B above apply to you.
Below is the corresponding bankruptcy code that applies.
SECTION 541 of the Bankruptcy Code
(6) funds used to purchase a tuition credit or certificate or contributed to an account in accordance with section 529(b)(1)(A) of the Internal Revenue Code of 1986 under a qualified State tuition program (as defined in section 529(b)(1) of such Code) not later than 365 days before the date of the filing of the petition in a case under this title, but—
(A) only if the designated beneficiary of the amounts paid or contributed to such tuition program was a child, stepchild, grandchild, or stepgrandchild of the debtor for the taxable year for which funds were paid or contributed;
(B) with respect to the aggregate amount paid or contributed to such program having the same designated beneficiary, only so much of such amount as does not exceed the total contributions permitted under section 529(b)(7) of such Code with respect to such beneficiary, as adjusted beginning on the date of the filing of the petition in a case under this title by the annual increase or decrease (rounded to the nearest tenth of 1 percent) in the education expenditure category of the Consumer Price Index prepared by the Department of Labor; and
(C) in the case of funds paid or contributed to such program having the same designated beneficiary not earlier than 720 days nor later than 365 days before such date, only so much of such funds as does not exceed $5,000.
This is not legal advice. If you have a 529 plan you should speak with a knowledgeable attorney prior to filing personal bankruptcy.