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California Bill Exempting 529s From Bankruptcy Goes to Governor

A new California bill would protect college savings in its ScholarShare 529 program from creditors.

The California state Senate has passed a bill that would protect college savings in its ScholarShare 529 program from being turned over to creditors in the case of bankruptcy. SB 898, authored by state Sen. Bob Wieckowski and sponsored by state Treasurer Fiona Ma, now goes to Gov. Gavin Newsom for signature.

The bill would add ScholarShare 529 accounts to the list of exemptions under California bankruptcy law. The exemption amount will be a maximum $15,000 for the first and second years prior to the bankruptcy filing. Other exemptions include unemployment, Social Security, veterans benefits and alimony. Retirement plans are also protected.

“This legislation helps preserve the college dreams of young people whose families may fall on hard times because of the massive economic problems caused by COVID-19,” Ma said in a statement. “College savings are needed now more than ever and those savings should be encouraged and protected.”

The ScholarShare program was created in 1999 and provides families with tax-deferred growth and withdrawals free from state and federal taxes when used for higher education expenses. Morningstar gave the plan a gold rating.

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