Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Can Cover Study Abroad Programs in 2026
Transcript
- Lucas: So, study abroad. It's one of those experiences a lot of families dream about for their kids, but the price tag can be intimidating. Luna: Right, and I think a lot of parents assume their 529 plan is strictly for tuition at a U.S. college. But that's not the full picture. Lucas: Not at all. In fact, the IRS has allowed 529 funds to be used for study abroad programs for years — but there are specific rules about what qualifies. And as of 2026, some of those rules have actually expanded. Luna: What changed exactly? I know the SECURE Act 2.0 opened up some things, but I'm fuzzy on the details. Lucas: Great question. Broadly speaking, a 529 plan can cover study abroad if the program is offered by an eligible educational institution — meaning a school that's accredited and eligible to participate in federal student aid programs. That includes many foreign institutions now, thanks to updates in the Department of Education's list. Luna: So my kid wants to spend a semester at the University of Edinburgh — that's eligible? Lucas: It is. As long as the student is enrolled at least half-time and the program is part of their degree plan. The key is that the 529 distribution must be for qualified expenses — tuition, fees, room and board — just like at a domestic school. Luna: What about airfare? That's usually a big chunk of the budget. Lucas: Airfare is a gray area. The IRS says travel expenses are not qualified expenses. But — and this is important — if the student is studying abroad through a U.S. university's program, and they're paying that university's tuition and room and board through a 529, the airfare isn't covered directly. Some financial advisors argue that if the program includes a travel component as part of the curriculum, you might have a case. But I'd say tread carefully. Luna: So the safe bet is to use 529 funds for the tuition and housing, and pay for flights out of pocket. Lucas: Exactly. Let me give you a concrete example. A student at the University of Michigan goes on a semester-long program in Madrid. They're still enrolled at Michigan, paying Michigan tuition, and living in a Spanish apartment arranged by the program. The 529 can cover the tuition bill from Michigan and the housing costs in Madrid — as long as the housing is provided by the school or a program-affiliated entity. Luna: So if the student rents an apartment on their own, that's not covered? Even if it's for the semester? Lucas: Right. The room and board expense is only qualified if it's under a school's housing plan. So if the program offers a homestay or a dorm, that's fine. But a private lease wouldn't count. And the same goes for meals — they need to be part of a university meal plan or similar arrangement. Luna: That's a nuance a lot of families might miss. So you really want to check with the study abroad office to see how housing is billed. Lucas: Absolutely. And the other big thing is documentation. When you take a distribution from a 529, you need to be able to show that the money went to qualified expenses. For study abroad, that means keeping receipts in the local currency — and maybe converting them to dollars for your records. The IRS doesn't require a specific format, but you want a clear paper trail. Luna: Speaking of documentation, what about programs that charge fees in euros or pounds? Does the 529 plan handle currency conversion automatically? Lucas: No, it doesn't. The 529 plan will distribute the money in U.S. dollars to your bank account, and then you'll convert it to pay the foreign institution. That's fine — just keep the exchange rate receipts. The qualified expense is the amount in dollars that you actually paid. Luna: And what about the foreign institution itself? Does it need to be on some list for the 529 to work? Lucas: Yes. The school must be an eligible educational institution under the Higher Education Act. The Department of Education maintains a database of foreign schools that participate in the federal student loan program, and those are the ones that qualify. As of 2026, that list includes over 400 institutions worldwide — from Oxford to the University of Tokyo. Luna: So it's not just a handful of schools. That's good news for families who want more exotic locations. Lucas: Exactly. And the trend is toward even more inclusion. With study abroad participation rebounding post-pandemic — it was up something like 30% in 2025 over 2024 — the IRS and Department of Education are making it easier to use 529 funds internationally. Luna: You know, I have a friend whose daughter did a summer program in Costa Rica through her university — she used her 529 for the program fee and got a tax-free distribution. Lucas: That's a perfect example. Summer programs count too, as long as they're part of the student's degree program and the student is enrolled at least half-time. Some families don't realize that half-time enrollment can include summer sessions if the student is taking enough credits. Luna: And a quick note — because we're talking about something that genuinely helps people — if our money conversations have helped you think about a decision differently, a couple of dollars a month is what keeps these episodes coming. You can support the show at buy me a coffee dot com slash fexingo. Lucas: Yeah, it really does make a difference. Every little bit goes straight into keeping this ad-free and focused on topics like this. Luna: Alright, back to study abroad. One more nuance — what about the student's health insurance or visa fees? Can those be paid from a 529? Lucas: Health insurance is another gray area. If the student is required to have health insurance as a condition of enrollment, and the school provides a plan, then the premium could be considered a qualified expense. But if the student buys a separate policy, it's not. And visa fees are definitely not qualified — those are administrative costs, not educational. Luna: Makes sense. So the rule of thumb is: if it's a fee that appears on the school's billing statement, it's probably covered. If it's a third-party expense, it's not. Lucas: That's a good way to think about it. And I'd add one more tip: before your child leaves, call your 529 plan provider and ask specifically about study abroad distributions. Some plans have their own forms or procedures for international expenses. Luna: Great advice. So to wrap up — 529 plans absolutely work for study abroad, but you need to do your homework on what counts as a qualified expense and what doesn't. Lucas: Yeah, and the key is to treat it just like you would a domestic semester — check the school's eligibility, keep receipts, and only use the 529 for tuition, fees, and school-arranged room and board. Do that, and your child's semester in Paris or Seoul can be tax-free. Luna: And with the 2026 rules making more foreign institutions eligible, there's never been a better time to plan for it. Lucas: Absolutely. Study abroad is one of those experiences that can change a student's trajectory — and it's nice to know your 529 can help get them there.