Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / Using a 529 Plan for Your Child's Study Abroad Program
Transcript
- Lucas: Luna, I was looking at some data from the Institute of International Education this morning — they track study abroad participation, and the numbers for 2025 show that about one in ten U.S. undergraduates now study abroad before they graduate. That's roughly 200,000 students a year. Luna: That's a lot of plane tickets and tuition payments. But here's the thing — I bet most of those families don't realize their 529 plan can cover a huge chunk of those costs. We haven't really dug into that on the show yet. Lucas: We haven't. And it's one of those areas where the IRS rules are actually more generous than people assume. So today, let's walk through exactly what's qualified when your child studies abroad using a 529 plan. Luna: Alright. Let's start with the big question — does the foreign school have to be some kind of approved institution? Because I know not every program abroad is run by a U.S. college. Lucas: Great question. The IRS says the institution must be eligible to participate in federal student aid programs under Title IV of the Higher Education Act. That's the same standard for domestic schools. Most accredited foreign universities that accept U.S. federal loans will qualify. But if your child is going through a third-party provider like CIEE or API, you need to make sure the program is sponsored by an eligible U.S. school. Luna: Right. So if your kid enrolls in a semester at the University of Barcelona directly, you'd want to check that Barcelona is on the Department of Education's list of eligible foreign institutions. Most major universities are, but it's worth verifying. Lucas: Exactly. And if they go through their home university's study abroad office, you're almost certainly fine because the home institution is the eligible school. Now, what expenses can you pay with 529 funds? Tuition is obvious. But room and board counts too — as long as the student is enrolled at least half-time. And that includes on-campus housing abroad, off-campus apartments, even homestay programs, up to the school's official cost of attendance. Luna: What about flights? Can you use 529 money for a plane ticket to London or Tokyo? Lucas: Yes, but with a caveat. Airfare is considered a qualified travel expense, but only if the student is traveling directly to and from the foreign institution. You can't use 529 funds for a side trip to Paris over spring break. And the IRS hasn't given super detailed guidance on what counts as 'directly related,' so most financial advisors recommend keeping it conservative — one round-trip ticket per academic term. Luna: So no stopovers for a week in Iceland just because it's on the way. Lucas: Not with 529 money. You'd pay for that out of pocket. But insurance is another qualified expense — health insurance required by the program or the host country. Also, books, supplies, and even a laptop if the program requires it. The same rules that apply domestically apply internationally. Luna: That's pretty broad. Let me ask about a specific scenario I've heard from listeners — what about a summer program that's only four weeks? Does half-time enrollment still apply? Lucas: The half-time requirement is per academic term. For summer programs, the school defines what's considered half-time. Many short-term summer abroad programs qualify because they carry enough credit hours. But if it's a non-credit language immersion, you might be out of luck. Always check with the program's financial aid office before you withdraw. Luna: Good advice. Before we go deeper, I want to bring something up. You know, conversations like this — where we unpack a specific rule and help people save real money — that's exactly why listeners tell us they value the show. And if those conversations have helped you think about a college funding decision differently, there's a simple way to return the favor. You can support the show at buy me a coffee dot com slash fexingo. It's what keeps us ad-free and focused on topics like this. Lucas, I know you feel the same. Lucas: Absolutely. No pressure ever, but every bit helps us keep digging into these details. So back to study abroad — another big one: can you use 529 funds for a student's visa application fees? Luna: I would guess no, but I don't actually know. Lucas: The IRS hasn't explicitly said yes, so most experts treat them as non-qualified. Same with passport fees. The logic is that those are costs you incur regardless of whether you end up studying abroad — they're not educational expenses per se. Better to pay those from a regular savings account and save your 529 withdrawals for the big-ticket items. Luna: Makes sense. What about currency exchange? If you withdraw money from a 529 and the dollar weakens against the euro, can the extra cost be covered? Lucas: The withdrawal is in U.S. dollars. You take the distribution, then you convert it. The IRS doesn't care about exchange rate fluctuations — they care about the dollar amount you withdrew. As long as that amount doesn't exceed your qualified expenses, you're fine. But if the exchange rate moves against you and you need more dollars to cover the same euro-denominated rent, you'd have to withdraw more — and that extra could be a non-qualified distribution if it pushes you over the expense total. Luna: So you want to be conservative on your withdrawal amount, or use a separate buffer account. Lucas: Exactly. Many families plan to withdraw only up to the billed expenses and then use a separate travel card for incidentals. Let me give you a concrete example. I talked to a family in Chicago whose daughter spent a semester at the University of Barcelona through her home school. Total program cost — tuition, housing, meals, airfare, insurance — came to about $22,000 for the semester. They paid all of it from their 529. Because the distribution was used for qualified expenses, every dollar came out tax-free. That saved them roughly $4,000 in taxes compared to using a taxable account. Luna: And that's the whole point of a 529 — the tax-free growth and withdrawal for education. So if you've been saving for years and your kid decides to study abroad, you can use those funds without penalty. Lucas: Right. But there's one trap I want to flag. If your child receives a scholarship that covers part of the program cost, you can withdraw an equal amount from the 529 without penalty — but the earnings portion would be subject to income tax. That's the scholarship exception. It's not a penalty, but it's not tax-free either. So you want to coordinate with the financial aid office to avoid double-paying. Luna: Good point. And if the program gets cancelled — say another pandemic scenario — can you roll the money back into the 529 or use it for something else? Lucas: If the student doesn't attend at all, you can return the withdrawal to the 529 within 60 days without penalty. If they start but the program is cut short, it's trickier. You may be able to treat the unused funds as a qualified withdrawal if you have other education expenses that year. Otherwise, the earnings would be taxed and hit with a 10 percent penalty. So keep good records. Luna: Alright, let's wrap this up with one practical tip. If you're planning to use a 529 for study abroad, what's the single most important step to take before you write that check? Lucas: Get a letter from the study abroad office confirming that the program is sponsored by an eligible institution and that the student will be enrolled at least half-time. That letter is your audit protection. Keep it with your receipts. The IRS may ask for documentation, and having that letter makes the difference between a smooth tax return and a headache. Luna: Solid advice. So to recap — tuition, room and board, airfare, insurance, books, all qualified. Visa fees and passports, not qualified. And always verify the institution's eligibility first. Lucas: Exactly. And remember, the rules are the same whether your child is studying in London or Lisbon. The 529 doesn't care about the passport stamp — it cares about the expense category. So plan ahead, keep documentation, and enjoy the fact that your savings can follow them across the ocean. Luna: That's a great note to end on. Thanks for listening, and we'll be back next time with another angle on college savings.