Many college students are interested in studying abroad to enrich their college experience. According to recent data from NAFSA, 188,753 college students studied abroad in the 2021-22 academic year. But as with many college-related expenses, the costs can add up.
Subject to certain restrictions, you can use tax-free distributions from tax-advantaged 529 college savings plans to study abroad. The distribution must be used to pay for qualified higher education expenses at an eligible educational institution, which includes colleges and universities eligible for Title IV federal student aid.
Eligible and ineligible 529 expenses
Even though any expense in the college’s cost of attendance is eligible for Title IV federal student aid, including reasonable costs associated with study abroad, qualified higher education expenses for 529 plans are limited to a subset of the cost of attendance.
The same restrictions on qualified higher education expenses for study in the U.S. apply to using a 529 plan distribution to pay for study abroad. In particular, tuition, fees, books, supplies and equipment, and room and board (on—or off-campus, if enrolled at least half-time) are considered qualified expenses.
Some expenses that aren’t 529 plan eligible include:
- Airfare, train tickets, and other travel expenses
- International health insurance
- Personal expenses while abroad, such as entertainment
Remember that basic living expenses and the overall cost of living vary worldwide, so be prepared to pay more out of pocket for some expenses than you’re used to.
How to use 529 funds to study internationally
The process for withdrawing and spending your 529 plan funds to cover expenses related to studying abroad is much the same as it is for studying domestically.
Follow the typical 529 withdrawal steps, which include
- Calculate qualified education expenses: Add up qualified expenses like tuition, fees, and room and board (if enrolled half-time), and subtract tax-free educational assistance and amounts used for education tax credits to determine the tax-free withdrawal amount.
- Determine when to withdraw: Ensure 529 withdrawals match the same calendar year as the qualified expenses to avoid non-qualified dnonqualifiedand penalties.
- Decide which account to withdraw from: Choose the account with the highest growth for tax savings and consider the impact on financial aid when using grandparent-owned or multiple 529 plans.
- Complete a withdrawal request: Submit a request through your 529 plan, ensuring funds go to the beneficiary or their institution to minimize tax liabilities.
Again, avoid using 529 plans for ineligible expenses to avoid income tax and penalties on nonqualified withdrawals.
Ways to study abroad
There are two different ways to study abroad.
The first is through U.S. colleges and universities offering 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 also 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.
The second option is for students to enroll in a foreign college or university for their entire educational program, provided the foreign college or university is eligible for Title IV federal student aid. (Foreign colleges and universities eligible for Title IV federal student aid are limited to federal student loans.) More than 400 foreign colleges and universities are eligible for Title IV federal student aid.
You can search for colleges and universities eligible for Title IV federal student aid using the Federal School Code Lookup tool for Section 529 Eligible Institutions. For schools outside of the U.S., select “CN” for Canada, “MX” for Mexico, or “FC” for foreign country in the “state” field.
Using a 529 plan to fund a study abroad experience offers a tax-efficient way to help cover educational costs at eligible institutions, whether studying through a U.S. college or enrolling directly at a foreign university. Remember to carefully track and calculate qualified expenses, stay within the guidelines to avoid penalties, and ensure that the institution is eligible for Title IV federal student aid. With a bit of planning, a 529 plan can make studying abroad a more affordable and enriching part of your college experience.
