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Imagine navigating the complex world of saving for your grandchild’s education from thousands of miles away, across oceans and continents. You’re determined to give them the gift of knowledge, but the maze of regulations and financial products seems daunting, especially when you’re not a U.S. citizen. This scenario is not uncommon in today’s globalized society, where family ties span the globe.
If you’re a foreign grandparent or expat interested in contributing to a loved one’s education, this guide will provide insights on eligibility and how you can contribute, regardless of barriers.
Can foreign grandparents and parents who aren’t U.S. citizens contribute to a 529 plan?
Generally, yes, grandparents, parents, and other non-U.S. citizens can contribute to a 529 plan.
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 with a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
Non-U.S. citizens living outside the U.S. may still contribute to a child’s 529 plan that someone else owns.
Grandparent-owned 529 account assets and withdrawals for qualified education expenses do not impact financial aid awards under new FAFSA rules.
Can expatriate parents or grandparents 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 to have a friend or family member 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.
These contributions may still be subject to the annual gift tax exclusion, so be sure to check with a tax professional. As the contributors to the 529 plan are non-U.S. residents, they are not eligible for any state tax deductions.
College savings plans are 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.
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 designated beneficiary can be changed to a qualifying family member 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 U.S. and international colleges and universities qualifying 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 at least half-time. Transportation costs, including airfare to and from the college, are 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 to all U.S. citizens and resident aliens of legal age. However, there are six 529 plans that are only available to in-state residents:
- Connecticut Higher Education Trust (CHET) Advisor Plan
- Florida 529 Savings Program
- Louisiana START Saving Program
- New Jersey NJBEST College Savings Plan
- South Carolina Future Scholar 529 College Savings Plan (Direct-Sold)
- South Dakota CollegeAccess 529 (Direct-Sold)
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 considered when selecting a 529 plan. For families with young children, an out-of-state 529 plan with lower fees provides greater financial value than a state income tax benefit.
