Transferring non-exempt property to exempt property is one way to protect value in your estate prior to filing for bankruptcy. There are rules in regarding whether you did so with the intent to hinder, delay or commit fraud on creditors, but these can be overcome. There must be some evidence in the facts or circumstances which are extrinsic to the mere facts of conversion of non-exempt assets into exempt and which are indicative of such fraudulent purpose. It is permissible under the threat of being sued to convert non-exempt assets into exempt assets. Typically this involves paying your mortgage down, but it can also be selling a cheap car and buying a car closer to the exemption value in order to protect cash in the bank. Things you want to stay away from are taking large sums of cash and putting them into IRA accounts on the eve of bankruptcy if you don’t have a history of putting too much money on a regular basis into that protected account. If you put money into another IRA on the eve of bankruptcy the court will most likely find you did so with the intent to hinder, delay or defraud. Things like Section 529 accounts unfortunately are considered to be part of bankruptcy estates even though they are for the benefit of your children.
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