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Parents and grandparents who are non-U.S. citizens may be able to open a 529 college savings plan if they are U.S. taxpayers. Most 529 plans require the account owner to be a U.S. citizen or a resident alien who has a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). However, non-U.S. citizens who live outside the U.S. may still contribute to a child’s 529 plan that is owned by someone else.
What are the tax benefits of 529 plans?
529 plans are investment accounts designed to help individuals save and pay for college. Investments in a 529 plan grow tax-deferred and distributions are tax-free when used to pay for qualified education expenses. This tax-free compounding can potentially provide substantially more growth over time than a taxable account, such as a mutual fund. These federal tax benefits are only recognized in the U.S.
Can a 529 plan beneficiary be a non-U.S. citizen?
A 529 plan beneficiary must be a U.S. citizen or resident alien with a Social Security Number or Individual Taxpayer Identification Number. A family member who is a U.S. citizen or legal alien may save for a child who is a non-U.S. citizen living abroad by changing the 529 plan beneficiary. A 529 plan beneficiary can be changed to a qualifying family member at any time without tax consequences. The 529 plan account owner can name themselves as the beneficiary and change it to the child once the child moves to the U.S. and has a Social Security Number or Individual Taxpayer Identification Number.
Can 529 plan funds be used to pay for college overseas?
529 plans may be used to pay for qualified expenses at any eligible post-secondary institution. Eligible institutions include both U.S. and international colleges and universities that qualify for Title IV federal student aid. Qualified expenses include tuition, fees, books, supplies, computers, internet access, and room and board if the student is enrolled on at least a half-time basis. Transportation costs, including airfare to and from the college, is not a qualified 529 plan expense. Students may also use a 529 plan to pay for some study abroad programs.
Which 529 plans are available to resident aliens?
529 savings plans are state-sponsored, but most are available nationwide at all U.S. citizens and resident aliens who are of legal age. However, there are six 529 plans that are only available to in-state residents:
Many families use an in-state 529 plan because their state offers a state income tax deduction or income tax credit for 529 plan contributions. Fees and investment performance should also be taken into consideration when selecting a 529 plan. For families with young children, an out-of-state 529 plan with lower fees provides a greater financial value than a state income tax benefit.
Can expatriate parents use 529 plans?
U.S. parents living in a foreign country may open a 529 plan to save for a child’s education, so long as one of the parents is a U.S. citizen. However, foreign countries do not recognize the tax-advantaged status of 529 plans. The earnings portion of a 529 plan distribution may be subject to local taxes. One option to avoid taxes is have a friend or family member who is living in the U.S. open a 529 plan for the expat’s child. The expat can set up recurring electronic gift contributions to fund the 529 plan account.
There are college savings plans available in other countries, such as the Junior ISA plan in the U.K. and the Registered Savings Plan (RESP) in Canada. However, the tax benefits of these college savings plans do not apply to U.S. expats, and the investments may be subject to U.S. federal taxes.
