529 plans & Possible State Financial Insolvency

[Anonymous]

Looking at the Bright Directions College Savings Program, sponsored by the state of Illinois. I'm concerned re: the financial health of Illinois. What happens to money invested in this 529 plan if a state goes bankrupt? Is the money accessible to the state government in the event of insolvency and/or bankruptcy? Is the money invested protected or insured in any way for the beneficiary? Is this a reason to look at another state's programs?

The Bright Directions College Savings Program is part of the Illinois College Savings Pool and is designed to qualify as a qualified tuition program under the provisions of Section 529 of the Internal Revenue Code. The Bright Directions College Savings Program is sponsored by the State of Illinois and administered by the Illinois State Treasurer, as Trustee. Union Bank & Trust Company serves as Program Manager and Northern Trust Securities, Inc., acts as Distributor. Investments in the Bright Directions College Savings Program are not guaranteed or insured by the State of Illinois, the Illinois State Treasurer, Union Bank & Trust Company, Northern Trust Securities, Inc., the Federal Deposit Insurance Corporation, or any other entity.

[Anonymous]

This is DC.

[Anonymous]

I think that the big worry with insolvency is with the pre-paid college tuition type plans, not the standard 401K type 529 college savings plans. The pre-paid tuition plans typically have a pitch where if you pay them $30,0000 when you child is 5 years old, they will guarantee all college costs will be paid for a state university.

For the standard 401K type, you invest your own money in various mutual funds and your money grows over time and whatever money you have when your child is in college you can spend. There isn't any risk with insolvency in those plans since you actually hold the underlying assets (i.e. the shares of the mutual funds).