Education IRA In Bankruptcy

An education IRA is a type of tax-exempt savings account that is treated similar to an IRA for tax purposes and is used by families to save up money to pay for the educational expenses of a child, usually for college or university.  You can keep a limited amount of funds in this type of account.  An education IRA is frequently referred to as an Education Savings Account (ESA) or an Educational IRA.  This type of account can also be used to save up money for the educational expenses of a stepchild, grandchild or step-grandchild, who may be the named beneficiaries of the account.

Keep an Education IRA in Bankruptcy In San Diego

The means by which you protect and keep an education IRA in bankruptcy is different from the means by which you protect other types of accounts.  With bank accounts and retirement accounts, you protect them claiming them as exempt under a particular law specifying how much you are allowed to keep in the particular type of account.  With educational IRA accounts, there is no exemption as with bank accounts.  Instead, you protect the money in such an account by specifying how much of the money in the account is or is not legally included as part of your bankruptcy “estate.”  That is, an education IRA is protected not by an exemption, but rather by excluding some or all of it from your case.

Excluded from Estate

When you file bankruptcy all of your interests in your assets that you own as of the filing of your case (including any money in your bank accounts or other types of accounts) become part of what is called your estate.  There are certain items that are excluded from your estate.  One of these excluded items is an education IRA.  Federal law specifically provides that education IRAs are not part of your estate.  Only the most experienced bankruptcy lawyers will fully understand this concept. The other day, I spoke to a lawyer who had filed a Chapter 7 proceeding for his client and mistakenly claimed the exemption for an IRA in an attempt to protect an education IRA, only to later learn from the trustee examining the case that the IRA exemption does not protect the education IRA.  Clearly, the lawyer’s client was unhappy (wouldn’t you be?), and the lawyer had sought my help to rectify the situation.  Unfortunately, this is a situation which may not be rectified.  This highlights the importance of obtaining legal representation by experienced bankruptcy counsel and not an attorney that practices all types of law.

Deposit Limits

There are strict limits on how much money you can deposit into an education IRA each year.  For tax years 2022 and 2023, you can put up to $2,000 in the account each year, for each child.  You can put money in the account each year, up to the yearly maximum, until your child turns 18 years old.


For the education IRA to be excluded from your estate, you have to make the deposits at least one year before your lawyer files your case. That means that any amounts deposited into the educational IRA in the last year (365 days) before your case is filed, are included in your estate.  Only amounts deposited into your education IRA more than one year before your case is filed are excluded from your estate.


Even if your account is excluded from property of your estate, your attorney must still disclose your interest in the account in your case.   Your attorney is required to do this so that the trustee can make his or her own determination as to whether, and to what extent, the account is excluded from your estate.  Remember, not all funds in educational IRAs are protected.  For example, funds deposited in the last 365 days are included in your estate.

Protect With Wildcard Exemption

If some or all of the money in your educational IRA is included in your estate (for example, money deposited within the last year), you still have an option for protecting the money.  You can use the Wildcard bankruptcy exemption to protect it, assuming you have not used up that exemption and you are using the Federal exemptions that include the Wildcard exemption.  A San Diego bankruptcy attorney can help you use the Wildcard exemption to protect your money in an education IRA.

Cannot Pledge as Security

In order to exclude the funds in an education IRA account from your estate, the funds cannot be pledged as security.  Otherwise the money in your account will not be excluded from your estate, and your only means for protecting the funds will be the Wildcard exemption.

Rules are Complex

The rules covering education IRAs are very complex and it takes a skillful lawyer to properly protect your money.  Before filing bankruptcy San Diego, talk to an experienced San Diego bankruptcy lawyer about precautions to take to ensure that your account is protected.