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Using 529 Plan Funds to Study Abroad

AS332561820 (529 Plans Study Abroad)

Tips for Using Your College Savings Account to Study Overseas

If you’re a parent or grandparent who has saved in a 529 college savings plan to help cover the cost of a loved one’s education, you may worry when you discover your child or grandchild is interested in studying overseas. Thankfully, 529 funds can be used at certain foreign universities. Read on to learn more.

529 Eligible Expenses

It’s possible to use 529 funds to pay for eligible expenses at certain universities, including:

  • University tuition and fees
  • Program-specific fees
  • Room and board (if at least a half-time student; off-campus living expenses can’t exceed the school’s published cost of room and board.)
  • Required textbooks

529 funds can’t be used on non-education expenses, such as:

  • Transportation (e.g., flights to the school)
  • International health insurance
  • Basic living expenses
  • Medical expenses not covered by insurance
  • International cell phone expenses
  • Sports and activities not associated with the university’s curriculum

529 funds can’t be used for room and board expenses when your student isn’t attending classes — an important consideration if your student decides to continue living abroad over summer break.

529 Eligible Schools

In order to accept 529 funds, a university must be designated as eligible by the U.S. Department of Education. A list of eligible schools is available here. Be sure to confirm the eligibility of your student’s desired school before they enroll.

In addition to covering the cost of enrolling at a foreign university, 529 funds can also be used for study abroad programs. Programs typically qualify as long as they’re supported by a qualified U.S.-based university.

Tax Implications

The main benefit of using 529 funds to cover educational costs is that withdrawals used for eligible expenses are typically exempt from federal taxes. However, if 529 funds are used for non-eligible expenses, any earnings are subject to ordinary income taxes and a potential 10% penalty. Your state may impose additional taxes and penalties on any non-qualified expenditures.

Before using your 529 Plan to fund overseas education expenses, be sure consult with an experienced international wealth advisor to fully understand how withdrawals may impact your tax exposure and overall financial plan.

Interested in learning more about the financial implications of sending your student overseas to study? Creative Planning International is here for you. We specialize in helping U.S. expats and cross-border families maximize their wealth and avoid costly mistakes. Our experienced advisors understand the complex interaction of multi-jurisdiction tax and regulatory regimes and help clients develop custom strategies to meet their needs. Because we serve in a fiduciary capacity, you can be confident we’re acting solely in your best interests.

To learn more, request a meeting with a member of our team.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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