A 529 college savings plan can offer several advantages for students and their families. These plans allow you to set aside money for education expenses while offering potential tax benefits when the funds are used for qualified expenses. But what if you want to study in another country? Can you use a 529 to pay for study abroad programs? Here is what to know.
529 College Savings Plan Basics
529 plans are sponsored by individual states and help families save for future education expenses. The money in the plan can grow tax-deferred, and you may not have to pay federal or state taxes when you withdraw funds for qualified expenses.1 The following costs are considered qualified education expenses:
- Tuition and fees
- Room and board
- Books and supplies
- Technological needs, such as a computer or internet access
There are a few important details to keep in mind about qualified expenses.
- The school must be accredited for these expenses to qualify.
- Room and board costs are limited to the school’s allowance or the cost of on-campus housing, whichever is higher.
- Books, supplies, and technology must be required for your studies.
If you withdraw money for nonqualified expenses, you will have to pay income tax on any earnings. You may also need to repay any state tax deductions or credits you previously received. In addition, a 10% tax penalty may apply to the earnings portion of the withdrawal.
Can You Use a 529 to Pay for Study Abroad?
So how does studying abroad fit in? The good news is that you can use your 529 funds to cover some expenses related to studying in another country.
If the school outside the United States is eligible to participate in federal student aid programs, you can use your 529 funds for qualified education expenses. You can check the U.S. Department of Education’s list of international schools that take part in federal student aid programs to confirm eligibility.2
What Study Abroad Costs Are Not Qualified?
While many education costs qualify, some expenses related to studying abroad do not. These costs can add up quickly:
- Travel to and from your school, including airfare, train tickets, taxis, and public transportation
- Sports or activity fees not required as part of your coursework
- Health insurance and medical expenses
- International cell phone plans
- General living expenses
- Foreign transaction fees
You must be enrolled at least part-time to use 529 funds without penalties for qualified expenses. If you stay in your host country during a break without taking classes, you likely cannot use 529 funds for room and board during that time.
Getting Started With a 529 College Savings Plan
Setting aside money can help you prepare for future education costs. A 529 plan allows your savings to grow with tax advantages and can be used for qualified expenses, even if the student plans to study outside the United States. To learn more about opening a 529 college savings plan, consider speaking with a registered representative.
Sources
- Tax Benefits for Education. https://www.irs.gov/pub/irs-pdf/p970.pdf.
- Aid for International Study. https://studentaid.gov/understand-aid/types/international#participating-schools.
