05 May Can I use a 529 plan to pay for overseas education?

Q. Can the 529 plan money be used to fund education in the U.K.?
— Mom

A. The short answer is yes, subject to certain restrictions.

529 plans are a great way to save for college because of the tax-free growth.

Distributions from 529 college savings plans can be used tax-free to pay for qualified expenses if the study program at the foreign institution is eligible for credit at the student’s U.S. home institution, and if the foreign institution is eligible for Title IV federal student aid, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

In simple terms, your school has to give credit for the study abroad program, and the foreign college where you will be studying abroad must be eligible for financial aid, DeFelice said.

There are two different ways to study abroad.

DeFelice said most U.S. colleges and universities offer a study abroad program in which the student spends a term or two studying at a foreign university.

“If the U.S. college or university is eligible for Title IV federal student aid, the study abroad program will be eligible for federal student aid, provided that the classes in the study abroad program are accepted for credit by the U.S. college or university,” he said.

Or students can also enroll in a foreign college or university for their entire educational program, provided that the foreign college or university is eligible for Title IV federal student aid, he said.

“More than 400 foreign colleges and universities are eligible for Title IV federal student aid,” he said.

You can check to see if a school is on the list here.

“The bulk of study-abroad expenses consists of tuition, fees, and approved room-and-board expenses, which are eligible to be funded with a 529 plan, just like they are in the United States,” DeFelice said. “Required textbooks, which can be a significant expenditure, are also covered.”

In addition, under the SECURE Act, 529 funds can 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, he said.

But unfortunately, there are study abroad costs that are not covered because they are not considered qualified expenses by the 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
· Basic living expenses
· Any costs associated with an international cell phone
· Sports or other activities that are not part of the college curriculum
· Foreign transaction fees
· Non-university room and board

“If you decide to live off campus because it is less expensive than housing provided by the school, especially during the summer months, be sure to take into account that your rent will not be covered because it will no longer be a qualified expense,” he said.

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This story was originally published on May 5, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.