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Using Your 529 Savings to Study Abroad

Many foreign schools and most educational expenses qualify

As the cost of attending college increases across the United States and around the globe, how to pay for it remains a big concern. Many students and families who opened 529 plan accounts to fund their education here are discovering that the money can also be used to study abroad, if you follow the rules.

Key Takeaways

• 529 savings plans can be used to pay for study-abroad programs but not to cover day-to-day expenses or travel costs, which can be substantial.
• The host school must be approved by the U.S. Department of Education to be eligible for 529 funds.
• The student must also be enrolled at least half-time for their room and board costs to qualify.

A 529 plan is a tax-advantaged savings account for education. While traditionally used for college and other higher education costs, the plans can now be used for qualified K–12 expenses and some student loans as well.

529 plans are administered by the states. While different states offer different funds—as well as varying tax deductions or credits—you don’t necessarily have to buy into a plan offered by the state where you reside. The majority of 529 savings plans have no state residency requirements, leaving you free to choose from a vast number of plans—although you may forgo a state tax break for your contributions if you do.

While your contributions don’t entitle you to any immediate federal tax breaks, the money that your account earns will not be subject to federal income tax as long as you use your withdrawals for qualified education expenses , such as tuition, room and board, and mandatory fees.

How to Use 529 Savings to Study Abroad

Before putting down a deposit on an expensive study-abroad program, you may want to familiarize yourself with the rules regarding 529 plans and educational trips. Fortunately, the bulk of study-abroad expenses consists of tuition, fees, and room and board, which are eligible to be funded with 529 money just as they are in the United States. Required textbooks—which can be another significant expenditure—are also covered.

Note that for room and board to qualify, the 529 beneficiary must be at least a half-time student. And if the student chooses to live off campus, then their eligible room and board can’t exceed the school’s published cost of attendance estimate for those expenses.

A study-abroad program sponsored by your U.S. college or university will qualify for 529 funding if the U.S. school does. If you enroll in a foreign college or university, it may also qualify if it’s an eligible educational institution as defined by the U.S. Department of Education. You can find out by consulting the Federal School Code List . Many foreign colleges and universities are on the list.

In addition, as a result of the Setting Every Community Up for Retirement Enhancement (SECURE) Act , passed and signed into law in 2019, 529 funds can now be used to pay back student loans (up to $10,000) and for eligible apprenticeships—both of which could be useful for those studying abroad.

You can’t use 529 funds for travel, so you’ll want to budget accordingly for tickets to get to your destination and home again.

Unfortunately, there are study-abroad costs that are not covered because they are not considered qualified expenses by the Internal Revenue Service (IRS) . These include:

• The cost of traveling to and from the school, including airline tickets, train tickets, cab fares, etc.
• International health insurance or medical costs not covered by U.S. health insurance (You can’t use your 529 to pay for U.S. health insurance, either.)
• Basic living expenses, which may be cheaper or more expensive than in the United States
• Any costs associated with an international cellphone
• Sports or other activities that are not part of the college curriculum

Are Study-Abroad Programs Eligible for Federal Financial Aid?

Yes, you can use federal financial aid for study-abroad programs, as long as you qualify for aid in the first place. The rules differ depending on whether you’re an undergraduate or graduate student and whether you’re taking a study-abroad program for credits at your U.S. college or university or enrolling full-time in the foreign school. You can find more details on the Federal Student Aid website.

What Happens If I Use 529 Funds for Expenses That Don’t Qualify?

If you withdraw money from a 529 plan account and use it for something other than qualified education expenses, you’ll generally owe federal income tax on the earnings (as opposed to contributions) portion of that amount as well as an additional 10% penalty. Your state may impose taxes and penalties as well.

Can I Use My 529 to Live Off Campus If I Study Abroad?

Yes, as long as you are enrolled at least half-time. However, the cost of your living expenses may not exceed that of the published room and board at the school you are attending. If there is a gap in the price, you’ll have to cover that using other funding.

The fantasy of studying abroad is often accompanied by sticker shock, as tuition and housing costs for these programs continue to rise. Fortunately, by using a 529 account—if you have one—you can save money on all of the expenses that qualify.

Internal Revenue Service. “ IRS Offers Guidance on Recent 529 Education Savings Plan Changes .”

Saving for College. “ How Much Is Your State’s 529 Tax Deduction Really Worth? ”

Internal Revenue Service. “ Topic No. 313, Qualified Tuition Programs (QTPs) .”

Internal Revenue Service. “ Publication 970: Tax Benefits for Education ,” Pages 50–52.

U.S. Securities and Exchange Commission. “ Updated Investor Bulletin: An Introduction to 529 Plans .”

Federal Student Aid. “ Aid for International Study .”

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How To Use 529 Funds To Pay for Studying Abroad

Using a 529 Plan To Pay for the Cost of Studying Abroad

Should you use 529 plan money to pay the cost of studying abroad, how to save on the cost of studying abroad, frequently asked questions (faqs).

Tatiana Kolesnikova / Getty Images

Studying abroad in college can be an eye-opening experience, but there's just one potential obstacle: the price tag.

On average, the cost of studying abroad ranges between $7,000 and $15,000 per academic semester. While student loans, study abroad scholarships, and grants may cover some of that, there is another option. If you've contributed money to a 529 college savings plan for college expenses, those funds can be used to pay study abroad expenses, too.

Key Takeaways

• You can use 529 college savings plan funds to pay for qualified education expenses such as tuition, room and board, and textbooks.
• Travel-abroad expenses such as airfare or international health insurance would not be qualified education expenses and could not be paid for with 529 funds.
• Before you commit 529 funds, make sure the host school abroad is eligible to participate in the Department of Education's student financial aid system.

529 plans are designed to offer a tax-advantaged way to save for qualified higher education expenses at eligible colleges and universities. The types of expenses typically covered include:

• Tuition and fees
• Room and board
• Computer software and equipment

The same rules that apply when using 529 funds to pay for college in the U.S. carry over when using the money to cover the cost of studying abroad. Simply, for a 529 plan withdrawal to be considered qualified and thus, tax-free, the money must be used to pay qualified study abroad expenses at a college or university that's eligible to participate in federal student aid programs.

The Department of Education maintains a list of international schools (including medical schools) that participate in federal student aid programs. If you plan to use student loans to pay some of the cost of studying abroad, they'll just need to fill out the Free Application for Federal Student Aid (FAFSA) as usual.

Costs Your 529 Plan Will and Won't Cover

So what expenses can be covered? The same list of things that would be covered at your home school mentioned earlier. The more important consideration is what you cannot use 529 account money for when paying the cost of studying abroad. That list includes:

• Travel to and from the host country or school
• International health insurance or health care costs incurred overseas
• An international cell phone
• Living expenses beyond room and board as provided by the host school
• Fees for activities and sports that aren't part of your curriculum

One other thing to note: Students must be enrolled at least half-time for a 529 plan withdrawal to count as a tax-free distribution. If you drop a course and fall below half-time, that could trigger a tax penalty.

This is an important question and finding the answer starts with analyzing the cost of studying abroad. The cost largely hinges on three things:

• The location of the host school
• The length of your stay
• Who's sponsoring the program

If you are enrolling in a study abroad program through your home university, you'll effectively pay the same for tuition, fees, and room and board at the host school as you would at home. If you're enrolling through the host school, however, the school determines the cost of attendance. Study abroad programs can also be sponsored by third-party companies, which charge their own fees.

If your home school comes with a significant tuition bill, and the host school is offering a much lower rate, it might make sense to reserve 529 plan money for expenses at your home school and pay for study abroad another way.

There's something else to consider if you are going through a third-party provider. You'll have to be sure the host school is qualified to participate in federal student aid programs. If it's not, you may not be able to use 529 plans as a tax-free withdrawal since third-party study abroad providers themselves don't have a federal school code. If you're paying for a third-party program with 529 money, be sure to keep detailed records of the expenses you pay in case the IRS challenges your withdrawal as non-qualified.

Before you set off, take time to create a budget and do the math to see if there are any opportunities to save on study abroad expenses.

For example, room and board on campus may be an option but how does that compare to the cost of living off campus? In some cities, and depending on the school, it may actually be less expensive to rent a private apartment.

Travel costs are another consideration. As soon as you know you plan to study abroad, start researching flights to their host destination. Booking early could help you snag a deal on an inexpensive flight.

If you have a travel rewards credit card , check your rewards balance to see if you have miles or points accumulated that you could use to cover the cost of their flight. One strategy that may be worth looking into if you don't have a travel rewards card is opening one well in advance of the travel date, then charging things to the card to earn an introductory points or miles bonus. You could then apply those rewards to their airfare. Just remember to pay the balance in full, otherwise, interest charges could nibble away at your savings.

Can a 529 plan be used for study abroad?

Yes, funds from a 529 college savings plan account may be used to pay for a study-abroad program. Just be sure the program is approved by the Department of Education and that you use withdrawn funds to cover qualified education expenses (which don't include travel expenses).

What Happens If I Use 529 Funds for Expenses That Don’t Qualify?

If you withdraw 529 college savings accounts funds and use them for non-qualified education expenses, you will be liable for income tax on that amount, plus a 10% penalty. You may also be subject to taxes and penalties levied by the state in which the account is held.

University of Louisville Office of Study Abroad and International Travel. " Financing your Study Abroad Program ."

Securities and Exchange Commission. " An Introduction to 529 Plans ."

Internal Revenue Service. " Topic No. 313 Qualified Tuition Programs (QTPs) ."

Internal Revenue Service. " Publication 970, Tax Benefits for Education ."

Can I use a 529 plan to study abroad?

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Studying abroad is valuable for many reasons, but it almost always costs more than a semester at your home school. If your child is heading abroad for higher education, you might be looking for ways to cover the cost. One way to foot the bill is to use a 529 plan . A 529 plan is an account that allows you to save after-tax money for education expenses. You can withdraw the funds tax-free as long as they’re used for qualified education expenses at universities, technical schools and vocational programs.

These tax-advantaged investment accounts allow you to stash away money for qualified education expenses, including tuition at eligible international schools. Here’s what to know about using these accounts for studying abroad .

Can a 529 plan be used for study abroad?

Distributions from a 529 plan can be used to pay for qualified higher education expenses at eligible international schools or universities. But to avoid taxes and penalties, it’s important to be sure that the school and the withdrawals meet IRS rules. Here are a few factors to consider.

Are the expenses qualified?

You’ll need to use the money from a 529 plan on qualified higher education expenses. This restriction applies to both U.S. schools and international schools. Additionally, students must use the plan withdrawals in the same calendar year that the qualified expenses are paid.

How long is the student’s stay?

Students must be enrolled in school at least half time for a 529 plan withdrawal to count as a tax-free distribution. The beneficiary may enroll at an international school for their entire educational program, or they can choose to spend a semester or two abroad.

Is the international school eligible?

To use 529 funds for an international school, the institution must be eligible for Title IV federal student aid. You can find out which schools qualify by checking the Department of Education’s list of participating schools . There are 760 international schools that are currently eligible for federal student aid.

If you can’t find a particular institution on the list, contact the school’s administrative office and ask whether students can apply for federal financial aid in the U.S. If the answer is “yes,” ask for the school’s code.

What college expenses are covered by a 529 plan when you study abroad?

A 529 plan allows you to save money for “qualified” education expenses. Generally, those include the normal costs of attending an educational institution, such as:

• Tuition and fees.
• Books, textbooks, supplies and equipment.
• Room and board (if enrolled at least half time).

But a 529 plan won’t cover certain expenses, including:

• International health insurance.
• Travel expenses.
• Basic living expenses.
• Sports and activity fees.

If you use 529 funds to pay for these nonqualified expenses, the IRS will apply income tax to the withdrawals, as well as a 10 percent penalty on the earnings portion of the withdrawal.

Should I use my 529 to study abroad?

A 529 plan can be a great way to cover the cost of school overseas. To figure out if this is a good fit for your family, first make sure that your child wants to attend an eligible school and that you plan to use the funds for qualified purposes.

Next, you can compare program costs. If your child enrolls in a study abroad program for one or two semesters, they’ll pay tuition and fees to their home university. But if they’re earning a degree through the host school, the school determines the cost of attendance. It might make sense to reserve 529 funds for expenses at the child’s home school if the international school offers a much lower cost.

If the study abroad program is offered through a third-party service, keep detailed records of the expenses you pay. That way, you’ll be prepared if the IRS audits your tax return and tries to challenge whether the expenses are eligible for tax-free withdrawals.

Reasons why you might not want to use your 529 for study abroad

While using a 529 plan can help fit the bill for study abroad, you may decide it is better not to use the funds for this purpose. For one, 529 funds may be subject to taxes in other countries because the money is only recognized under U.S. tax code.

Additionally, if you are applying for a study abroad program through a U.S.-based school, you will pay the tuition of that school rather than the school you are attending. If the school where the study abroad program is being taught is cheaper to attend, it may make more sense to pay for the program another way rather than using the 529 plan through the domestic school.

Other ways to pay for study abroad

While a 529 plan can be a great way to cover your study abroad expenses, it may not be enough, or the school you’re attending may not be eligible. Here are some other potential ways you can get the funds you need to pay for your experience:

• Apply for scholarships: The U.S. Department of State provides a list of scholarships available for students studying abroad in different countries. These scholarships are typically provided by foreign governments. You can also use scholarship search engines to seek out financial aid from private organizations.
• Manage your expenses: Unless your study abroad plans are already set in stone, consider going to a country with a lower cost of living. For example, South America and Eastern Europe may be cheaper options than Western Europe. Compare program costs between universities and try to find the right fit for your budget.
• Get a job: Depending on which country you’re planning to study in, you may have opportunities to work while you complete your coursework. Research visa requirements beforehand to understand what your options will be. You can also take a break between semesters and work at home before you travel.
• Apply for student loans: Some foreign universities are eligible for federal financial aid, including student loans . There are also private lenders that offer student loans specifically for studying abroad. Federal loans are typically more beneficial in the long run, so focus on those first, then consider private student loans as a last resort.

Take your time to map out your plans for studying abroad and how you’ll cover the expenses. The sooner you start with this process, the easier it will be to enjoy your study abroad experience without worrying about the financial side of things.

The bottom line

529 plans are one financial tool that you can use to pay for study abroad programs and can be a useful way to cover the expenses of education overseas. Consider all costs including taxes when factoring your decision and determine if using a 529 plan to pay for your education makes sense for you.

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Can 529 college savings plan fund be used to study abroad?

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Dear Liz: Can my daughter use her 529 funds for summer study abroad in Costa Rica? She will be taking two Spanish classes for credit through her university. She has a minor in Spanish. Could she use the 529 for tuition, living expenses and airfare? What if it is all part of a package deal paid to her university?

Answer: Yes, tax-free withdrawals from 529 college savings plans are allowed for study abroad as long as the classes are accepted for credit by the sponsoring university and the sponsoring university qualifies for federal financial aid (the vast majority of U.S. institutions do).

Qualifying expenses can include tuition, books and supplies, plus room and board if she’s enrolled at least half time. Other living expenses and transportation costs, including airfare, aren’t considered qualifying expenses.

Update trusts after life changes

Dear Liz: My wife and I have a trust created in California to distribute our assets to our children after our deaths. In 2017, we moved to Texas and had the trust updated by a Texas attorney to reflect some changes and any differences between Texas and California rules. We moved back to California in 2020. Do we need to update our trust documents again because of the relocation? Do we need to do it any time we move? The terms in the document are generally fine. I just don’t know if the change in residency requires an update to the document.

Answer: Your last move required updates. Why wouldn’t this one?

Any major life change, including a move to another state, should prompt a review of your estate documents. Such a review is a good idea anyway every five years or so, even if you think nothing has changed in your personal circumstances. Laws can change, or you may have different ideas about who your beneficiaries should be, or whom you want to make decisions for you should you become incapacitated.

People often think (or hope) estate planning can be a one-time process. But life and the law aren’t static, so estate plans need to evolve too.

How capital gains boost Medicare premiums

Dear Liz: We are retired and living mainly on a pension, which covers our month-to-month needs. We own our house outright and are considering downsizing. When we do that, will the capital gain cause our Medicare premiums to go up two years later? If so, will it automatically go down again after one year?

Answer: A big-enough capital gain can trigger Medicare’s income-related adjustment amount, which are surcharges on your Part B and Part D premiums. As you note, there’s a two-year delay between the higher income on your tax returns and higher premiums.

If you’ve had a life-changing event — marriage, divorce, a spouse’s death or loss of income, for example — you can appeal the increase by filing form SSA-44 . Otherwise, consider saving some of the home sale profits to cover your higher premiums for that one-year period.

Property transfers trigger tax problem

Dear Liz: I’m considering giving property (a condo) to my child through a quitclaim deed while I am still living. If she continues to live in the condo for two years after gaining possession, doesn’t she get a $250,000 capital gains exemption when she sells the property?

Answer: Yes, if she owns and lives in the home for at least two of the previous five years, she can exclude up to $250,000 of home sale profits from her income. However, her taxable gain would be based on your tax basis in the property: basically what you paid for the home, plus any qualifying improvements. Only if she inherits the home would the tax basis be updated to reflect its fair market value on the date of your death. Although taxes should never be the sole consideration for property transfers, the favorable step-up in basis may be a powerful incentive to hold off. Consider discussing your options with a tax pro.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.

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Liz Weston, Certified Financial Planner, is a personal finance columnist for the Los Angeles Times and NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.

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Using 529-Plan Money for College Overseas

If your son or daughter plans to attend college abroad, here's what you should know.

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Question: My daughter may go to college in Europe next year. Can we use her 529 college-savings money tax-free outside of the U.S.? - S.S., Lubbock, Texas

Answer: Yes. You can use 529 money tax-free at any college that is elig­ible for federal financial aid, which includes more than 400 foreign institutions, says Mark Kantrowitz, of Savingforcollege.com . To look up eligible schools, go to www.savingforcollege.com/eligible_institutions .

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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.

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Studying abroad is valuable for many reasons, but it almost always costs more than a semester at your home school. If your child is heading abroad for higher education, you might be looking for ways to cover the cost. One way to foot the bill is to use a 529 plan . A 529 plan is an account that allows you to save after-tax money for education expenses. You can withdraw the funds tax-free as long as they’re used for qualified education expenses at universities, technical schools and vocational programs.

These tax-advantaged investment accounts allow you to stash away money for qualified education expenses, including tuition at eligible international schools. Here’s what to know about using these accounts for studying abroad .

Can a 529 plan be used for study abroad?

Distributions from a 529 plan can be used to pay for qualified higher education expenses at eligible international schools or universities. But to avoid taxes and penalties, it’s important to be sure that the school and the withdrawals meet IRS rules. Here are a few factors to consider.

Are the expenses qualified?

You’ll need to use the money from a 529 plan on qualified higher education expenses. This restriction applies to both U.S. schools and international schools. Additionally, students must use the plan withdrawals in the same calendar year that the qualified expenses are paid.

How long is the student’s stay?

Students must be enrolled in school at least half time for a 529 plan withdrawal to count as a tax-free distribution. The beneficiary may enroll at an international school for their entire educational program, or they can choose to spend a semester or two abroad.

Is the international school eligible?

To use 529 funds for an international school, the institution must be eligible for Title IV federal student aid. You can find out which schools qualify by checking the Department of Education’s list of participating schools . There are 760 international schools that are currently eligible for federal student aid.

If you can’t find a particular institution on the list, contact the school’s administrative office and ask whether students can apply for federal financial aid in the U.S. If the answer is “yes,” ask for the school’s code.

What college expenses are covered by a 529 plan when you study abroad?

A 529 plan allows you to save money for “qualified” education expenses. Generally, those include the normal costs of attending an educational institution, such as:

Tuition and fees.

Books, textbooks, supplies and equipment.

Room and board (if enrolled at least half time).

But a 529 plan won’t cover certain expenses, including:

International health insurance.

Travel expenses.

Basic living expenses.

Sports and activity fees.

If you use 529 funds to pay for these nonqualified expenses, the IRS will apply income tax to the withdrawals, as well as a 10 percent penalty on the earnings portion of the withdrawal.

Should I use my 529 to study abroad?

A 529 plan can be a great way to cover the cost of school overseas. To figure out if this is a good fit for your family, first make sure that your child wants to attend an eligible school and that you plan to use the funds for qualified purposes.

Next, you can compare program costs. If your child enrolls in a study abroad program for one or two semesters, they’ll pay tuition and fees to their home university. But if they’re earning a degree through the host school, the school determines the cost of attendance. It might make sense to reserve 529 funds for expenses at the child’s home school if the international school offers a much lower cost.

If the study abroad program is offered through a third-party service, keep detailed records of the expenses you pay. That way, you’ll be prepared if the IRS audits your tax return and tries to challenge whether the expenses are eligible for tax-free withdrawals.

Reasons why you might not want to use your 529 for study abroad

While using a 529 plan can help fit the bill for study abroad, you may decide it is better not to use the funds for this purpose. For one, 529 funds may be subject to taxes in other countries because the money is only recognized under U.S. tax code.

Additionally, if you are applying for a study abroad program through a U.S.-based school, you will pay the tuition of that school rather than the school you are attending. If the school where the study abroad program is being taught is cheaper to attend, it may make more sense to pay for the program another way rather than using the 529 plan through the domestic school.

Other ways to pay for study abroad

While a 529 plan can be a great way to cover your study abroad expenses, it may not be enough, or the school you’re attending may not be eligible. Here are some other potential ways you can get the funds you need to pay for your experience:

Apply for scholarships: The U.S. Department of State provides a list of scholarships available for students studying abroad in different countries. These scholarships are typically provided by foreign governments. You can also use scholarship search engines to seek out financial aid from private organizations.

Manage your expenses: Unless your study abroad plans are already set in stone, consider going to a country with a lower cost of living. For example, South America and Eastern Europe may be cheaper options than Western Europe. Compare program costs between universities and try to find the right fit for your budget.

Get a job: Depending on which country you’re planning to study in, you may have opportunities to work while you complete your coursework. Research visa requirements beforehand to understand what your options will be. You can also take a break between semesters and work at home before you travel.

Apply for student loans: Some foreign universities are eligible for federal financial aid, including student loans . There are also private lenders that offer student loans specifically for studying abroad. Federal loans are typically more beneficial in the long run, so focus on those first, then consider private student loans as a last resort.

Take your time to map out your plans for studying abroad and how you’ll cover the expenses. The sooner you start with this process, the easier it will be to enjoy your study abroad experience without worrying about the financial side of things.

The bottom line

529 plans are one financial tool that you can use to pay for study abroad programs and can be a useful way to cover the expenses of education overseas. Consider all costs including taxes when factoring your decision and determine if using a 529 plan to pay for your education makes sense for you.

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Using 529 Plans to Study Abroad

Many students who use 529 plans (college savings accounts) to fund their education at KU can also use their 529 plan for study abroad. Study abroad expenses such as tuition and fees, program fees, room and board, and required textbooks are eligible to be funded with a 529 plan, just like they are in the United States.

Study abroad expenses that are not able to be covered with 529 plans include transportation, international health insurance, medical costs not covered by U.S. health insurance, basic living expenses, and any costs associated with an international cell phone.

KU study abroad program budgets will detail which payments, if any, are made through KU Enroll & Pay. Using 529 plans to pay for study abroad expenses follow the same process as paying for on-campus courses. Depending on the program, some fees will be paid directly to the host institution or program provider and not billed through KU, so you will have to check with your specific 529 plan to see what the procedure will be to pay for those fees. 

Can I use a 529 plan to study abroad?

S tudying abroad is valuable for many reasons, but it almost always costs more than a semester at your home school. If your child is heading abroad for higher education, you might be looking for ways to cover the cost. One way to foot the bill is to use a 529 plan . A 529 plan is an account that allows you to save after-tax money for education expenses. You can withdraw the funds tax-free as long as they’re used for qualified education expenses at universities, technical schools and vocational programs.

These tax-advantaged investment accounts allow you to stash away money for qualified education expenses, including tuition at eligible international schools. Here’s what to know about using these accounts for studying abroad .

Can a 529 plan be used for study abroad?

Distributions from a 529 plan can be used to pay for qualified higher education expenses at eligible international schools or universities. But to avoid taxes and penalties, it’s important to be sure that the school and the withdrawals meet IRS rules. Here are a few factors to consider.

Are the expenses qualified?

You’ll need to use the money from a 529 plan on qualified higher education expenses. This restriction applies to both U.S. schools and international schools. Additionally, students must use the plan withdrawals in the same calendar year that the qualified expenses are paid.

How long is the student’s stay?

Students must be enrolled in school at least half time for a 529 plan withdrawal to count as a tax-free distribution. The beneficiary may enroll at an international school for their entire educational program, or they can choose to spend a semester or two abroad.

Is the international school eligible?

To use 529 funds for an international school, the institution must be eligible for Title IV federal student aid. You can find out which schools qualify by checking the Department of Education’s list of participating schools . There are 760 international schools that are currently eligible for federal student aid.

If you can’t find a particular institution on the list, contact the school’s administrative office and ask whether students can apply for federal financial aid in the U.S. If the answer is “yes,” ask for the school’s code.

What college expenses are covered by a 529 plan when you study abroad?

A 529 plan allows you to save money for “qualified” education expenses. Generally, those include the normal costs of attending an educational institution, such as:

• Tuition and fees.
• Books, textbooks, supplies and equipment.
• Room and board (if enrolled at least half time).

But a 529 plan won’t cover certain expenses, including:

• International health insurance.
• Travel expenses.
• Basic living expenses.
• Sports and activity fees.

If you use 529 funds to pay for these nonqualified expenses, the IRS will apply income tax to the withdrawals, as well as a 10 percent penalty on the earnings portion of the withdrawal.

Should I use my 529 to study abroad?

A 529 plan can be a great way to cover the cost of school overseas. To figure out if this is a good fit for your family, first make sure that your child wants to attend an eligible school and that you plan to use the funds for qualified purposes.

Next, you can compare program costs. If your child enrolls in a study abroad program for one or two semesters, they’ll pay tuition and fees to their home university. But if they’re earning a degree through the host school, the school determines the cost of attendance. It might make sense to reserve 529 funds for expenses at the child’s home school if the international school offers a much lower cost.

If the study abroad program is offered through a third-party service, keep detailed records of the expenses you pay. That way, you’ll be prepared if the IRS audits your tax return and tries to challenge whether the expenses are eligible for tax-free withdrawals.

Reasons why you might not want to use your 529 for study abroad

While using a 529 plan can help fit the bill for study abroad, you may decide it is better not to use the funds for this purpose. For one, 529 funds may be subject to taxes in other countries because the money is only recognized under U.S. tax code.

Additionally, if you are applying for a study abroad program through a U.S.-based school, you will pay the tuition of that school rather than the school you are attending. If the school where the study abroad program is being taught is cheaper to attend, it may make more sense to pay for the program another way rather than using the 529 plan through the domestic school.

Other ways to pay for study abroad

While a 529 plan can be a great way to cover your study abroad expenses, it may not be enough, or the school you’re attending may not be eligible. Here are some other potential ways you can get the funds you need to pay for your experience:

• Apply for scholarships: The U.S. Department of State provides a list of scholarships available for students studying abroad in different countries. These scholarships are typically provided by foreign governments. You can also use scholarship search engines to seek out financial aid from private organizations.
• Manage your expenses: Unless your study abroad plans are already set in stone, consider going to a country with a lower cost of living. For example, South America and Eastern Europe may be cheaper options than Western Europe. Compare program costs between universities and try to find the right fit for your budget.
• Get a job: Depending on which country you’re planning to study in, you may have opportunities to work while you complete your coursework. Research visa requirements beforehand to understand what your options will be. You can also take a break between semesters and work at home before you travel.
• Apply for student loans: Some foreign universities are eligible for federal financial aid, including student loans . There are also private lenders that offer student loans specifically for studying abroad. Federal loans are typically more beneficial in the long run, so focus on those first, then consider private student loans as a last resort.

Take your time to map out your plans for studying abroad and how you’ll cover the expenses. The sooner you start with this process, the easier it will be to enjoy your study abroad experience without worrying about the financial side of things.

The bottom line

529 plans are one financial tool that you can use to pay for study abroad programs and can be a useful way to cover the expenses of education overseas. Consider all costs including taxes when factoring your decision and determine if using a 529 plan to pay for your education makes sense for you.

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Can you use a 529 plan to pay for travel costs?

By Mark Kantrowitz

November 16, 2018

You cannot use a 529 plan to pay for travel and transportation costs. The earnings portion of a distribution from a 529 that is used to pay for travel and transportation expenses will be considered a non-qualified distribution . Non-qualified distributions are taxable at the beneficiary’s rate, plus a 10% tax penalty, as well as recapture of state income tax benefits attributable to the distribution.

This applies to all travel and transportation costs, including transportation to and from the college and travel for international study and study abroad programs.

However, there may be an exception if the university charges any travel and transportation costs as part of a comprehensive tuition fee, or the fee is identified as a fee that is “required for enrollment or attendance” at the college. 

A college’s official cost of attendance , as defined in the Higher Education Act of 1965, includes an allowance for transportation expenses. The definition of qualified higher education expenses in the Internal Revenue Code of 1986, however, is different. It does not include transportation expenses, miscellaneous personal expenses, dependent care costs, loan fees and licensing fees, and room and board is limited to students who are enrolled on at least a half-time basis.

Qualified higher education expenses are limited to tuition, fees, books, supplies, equipment, special needs services, computers (including peripherals, software and internet access), and, if enrolled at least half time, room and board.

Students can ask their college to increase the cost of attendance to reflect their actual travel and transportation costs. However, the family will still not be able to use a tax-free distribution from a 529 plan to pay for the travel expenses. Increasing the cost of attendance may enable the student and parents to borrow more federal education loans to cover the costs.

Some colleges have emergency aid funds that may cover the cost of repairs to the student’s car if the student is a low-income commuter student. But, emergency aid funds will generally not cover the cost of routine travel costs, except perhaps the cost of public transportation.

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Blog: Can I Use My 529 Funds to Study Abroad?

Saving for a child’s college education is an important financial goal for many parents. In the U.S., 529 plans are a popular and tax-advantaged way of saving for college. However, there may be some questions and considerations when your child wants to use their 529 funds to study abroad. In this blog, we discuss which foreign universities are 529 eligible, and other considerations you should take into account.

Can a 529 plan be used for study abroad?

Yes, a 529 plan can be used to study abroad. 529 funds can be used to pay for qualified higher education expenses at eligible international schools or universities. They cannot be used to cover day-to-day expenses or travel costs. It’s also important the school and the withdrawals meet IRS rules to avoid taxes and penalties.

Which foreign universities are 529 eligible?

For an educational institution to be eligible, it must participate in the U.S. Department of Education’s federal student aid programs. Many accredited colleges, universities, and vocational schools worldwide meet this requirement . However, you must confirm the eligibility of the specific institution where you plan to enroll.

What college expenses are 529 eligible for studying abroad?

Make sure that you are familiar with the rules regarding 529 plans before your child puts down a deposit on an expensive study abroad program. Some of the college expenses that are covered for studying abroad include:

• Tuition and fees.
• Books, textbooks, supplies, and equipment.
• Room and board (the 529 beneficiary must be enrolled at least part-time and their eligible room and board can’t exceed the school’s published cost of attendance estimate for those expenses.)

Some of the college expenses are not covered for studying overseas include:

• International health insurance and medical costs
• Travel expenses
• Basic living expenses
• International cell phone costs
• Sports and activity fees
• Foreign transaction fees

What happens if my child uses their 529 funds for nonqualified expenses?

If your child uses their 529 funds to pay for nonqualified expenses, they will need to pay income tax on those withdrawals and a 10% penalty on the earnings portion of the withdrawals. They may also be subject to taxes and penalties levied by the state in which the account is held. Additionally, any withdrawals made must be in the same calendar year that the qualified expenses are paid.

There are rare exceptions to withdrawing without penalty, such as veteran’s assistance, attending a U.S. military academy, disability, or death.

Can my child use their 529 to live off campus if studying abroad?

Yes, as long as they are enrolled at least half-time. However, the cost of living off-campus must not exceed that of the published room and board at their school. If it is more, then they will need to cover that difference.

If they decide to stay abroad over summer break without taking any classes, they likely cannot use their 529 funds to pay for room and board. This can be so even if those were qualified expenses during the academic year.

What are the tax implications of using a 529 plan for international schools?

It is important to understand the tax implications of using a 529 plan for overseas education. While qualified distributions from 529 plans used for eligible expenses are generally tax-free at the federal level, state tax rules may vary. Some states may impose limitations or restrictions on using 529 funds for foreign institutions.

It’s best to consult with a tax professional, financial advisor, or 529 plan administrator. They can provide specific guidance on your state’s regulations to ensure that there aren’t any unexpected tax consequences.

Can you continue to invest in a 529 plan while living overseas?

You can continue to invest in 529 plans while living abroad. Many 529 plans offer state tax deductions, but if you aren’t filing state tax returns then you won’t receive this benefit.

Using 529 plans to study abroad

529 plans can generally be used for qualified higher education expenses at eligible universities abroad. However, it is essential to verify the eligibility of the specific institution and consider any applicable tax implications and fees associated with overseas expenses. It’s essential to understand the regulations and plan accordingly to ensure that your child can make the most of their 529 savings while pursuing education internationally.

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