New NC law will add protections for 529 college savings plans. What to know
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- New NC law shields 529 and ABLE accounts from most creditor actions.
- Protections apply to legal actions starting Sept. 1, 2025.
- Law replaces $25,000 cap and one-year limit with broader account safeguards.
If you’re saving money for your child’s future, that money is about to be more secure — if you’re investing it in a certain way.
North Carolina college-savings and disability-expenses accounts have more protections from creditors and debt judgments, starting Sept. 1.
The new protections are outlined in House Bill 378, which the state General Assembly approved in June and Gov. Josh Stein signed in July. They apply to two types of “tax-advantaged” investment accounts: NC 529 Plans, which allow parents and grandparents to save money for their children’s education, and NC ABLE accounts, which allow guardians of people with disabilities to save money for eligible care expenses.
Under the new law, creditors are not permitted to take funds from the accounts when they are attempting to enforce a judgment or debt collection against the owners or beneficiaries of, or contributors to, the accounts — provided the funds are used for the appropriate, qualifying purposes under the federal tax code. The protections apply to funds in the accounts and those withdrawn from them.
According to College for North Carolina (CFNC), NC 529 funds can be used for several qualifying expenses, including college costs like tuition, books and fees; K-12 tuition expenses of up to $10,000 per child, per year; career and technical education expenses; apprenticeship programs; special needs equipment; and student loan payments of up to $10,000 per child, per year.
Per the state treasurer’s office, which administers the NC ABLE program, funds in those accounts can be used for disability-related expenses including tuition; special education services including tutors; housing costs including mortgages, rent and utilities; legal fees; transportation costs; assistive technology; and more.
If funds in the accounts are being used for those purposes, they are exempt from “liens, attachment, garnishment, levy, seizure, any involuntary sale or assignment by operation or execution of law, or the enforcement of any other judgment or claim to pay any debt or liability of any account owner, beneficiary, or contributor to the account,” per an analysis of the legislation by General Assembly staff.
NC 529 accounts already had some protections under existing law, which prevented creditors from accessing funds placed in the accounts more than a year prior to the creditor enforcing the claim against the account owner. Those protections extended only to a maximum of $25,000 in the account. Those provisions have been repealed under the new law, in favor of the expanded protections.
The new protections would not apply if the funds were not used for a qualifying purpose or if they were deposited into a 529 or ABLE plan “as a result of fraud, intentional wrongdoing, or other violation of law,” the staff analysis states.
Additionally, ABLE funds would not be protected from claims by the state seeking to reimburse the state’s Medicaid program for benefits received by the participant after the account owner dies.
The new law applies to any actions against account owners filed on or after Sept. 1.
This story was originally published August 30, 2025 at 5:00 AM with the headline "New NC law will add protections for 529 college savings plans. What to know."
