Although creditor protection for 529 college savings plans has been a matter of state law, federal legislation might become another factor to consider. The bankruptcy bill now in Congress would provide some protection to 529 plans in a bankruptcy.
For now, some state laws protect a 529 account only from the beneficiary’s creditors but most protect the account from any claims against the account owner or the beneficiary. Therefore, one creditor protection tactic might be to put money into a protected 529 account and name yourself as beneficiary. You probably will have to pay a penalty tax on any earnings, if you later decide to reclaim that money, but in the meantime your assets will be safe from creditors.
Be aware, though, that those protections have not been tested where the account owner and/or the creditor is located outside the state granting such protection.
