Section 541 of the Code is worth a second look for debtors and their attorneys who are struggling with the question of how to shelter cash.
Section 541 identifies property that is considered "Property of the Estate" and therefore subject to the powers of the trustee and claims of creditors.
Section 541(b)(5) provides that property of the estate does not include "funds placed in an education individual retirement account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986) not later than 365 days before the date of the filing of the [bankruptcy] petition…." There is a $5,000 cap on any such transfer unless the money was transferred more than 720 days prior to filing, in which case there apparently is no limit.
As a practical matter, this means that if you see bankruptcy as a possible option, but not one that is likely to happen within the next year, you can shelter funds by putting them in an education IRA for the benefit of a child, stepchild or grandchild.
Section 541(b)(6) similarly exempts from the bankruptcy estate funds used to purchase tuition credits under a qualified State tuition program
[tags] Education IRA, IRC section 530(b)(1), qualified State tuition program, bankruptcy exemptions, pre-bankruptcy planning [/tags]