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.
- 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.
How a 529 Plan Works
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 are 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 qualify as well, 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 SECURE (Setting Every Community Up for Retirement Enhancement) Act, passed 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.
Which Expenses Are Not Eligible?
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, so 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 Studying Abroad?
As long as you are enrolled at least half-time, yes. 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 Bottom Line
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.