Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / Using 529 Plans for Study Abroad Programs
Transcript
- Lucas: Luna, did you know that over 350,000 U.S. college students study abroad each year? And a surprising number of those families unknowingly leave their 529 plans on the sidelines. Luna: I always assumed a 529 was for domestic tuition — like, you pay the school directly and that's it. Lucas: That's the common assumption. But the truth is that 529 plans can cover study abroad expenses, as long as the foreign institution meets a specific criterion — it must be eligible to participate in the U.S. federal student aid program, Title IV. Luna: So not every university in Europe or Asia qualifies. There's an actual list. Lucas: Exactly. The Department of Education maintains a database of foreign schools that have a federal school code — that's your green light. If the school is on that list, then your 529 can pay for tuition and fees, just like a domestic school. Luna: What about room and board? That's usually covered for a domestic student living off-campus. Lucas: Good question. Room and board is a qualified expense if the student is enrolled at least half-time. For study abroad, the same rule applies — whether they live in a dorm in London or rent an apartment in Tokyo. But here's the catch: the amount can't exceed the school's official cost of attendance for that term. Luna: So if the school lists housing at $8,000 a semester, you can only withdraw that much, even if rent is $10,000. Lucas: Right. And one expense that trips people up is airfare — it's generally NOT a qualified expense unless it's a required fee billed by the school. So that $1,200 flight to Rome? Not covered. Luna: That's a big one. I know families who assumed flights were part of the program and ended up with a non-qualified distribution, paying taxes and a penalty. Lucas: Yeah. And speaking of lists — this is a good moment to mention that this show exists because of a different kind of list: a small group of listeners who chip in monthly on Buy Me a Coffee. Luna: It's true. No ads, no sponsors — just listeners who value this deep-dive format. And it keeps us independent. Lucas: If you've gotten value from episodes like this one, consider joining them at Buy Me a Coffee dot com slash Fexingo. It literally keeps the show going. And now back to study abroad: another option is a through-provider program. Luna: What's that — like when a U.S. university runs its own study abroad campus? Lucas: Exactly. If the student pays tuition to their home U.S. school and that school runs the program, then the 529 can pay that U.S. school directly. That's even simpler — no need to check the foreign school's Title IV status. Luna: So it's really about who gets the check. Pay the U.S. school, you're golden. Pay the foreign school, you need that federal code. Lucas: Right. And there's one more important nuance: if you don't end up using all the 529 funds — say your child gets a scholarship or decides not to study abroad — you might be thinking about the Roth IRA rollover. But that requires the beneficiary to have earned income, and a study abroad semester usually means no job. Luna: So you can't just roll leftover 529 money into their Roth unless they worked during the semester. Lucas: Correct. So plan carefully. If there's a good chance the money won't be used, consider naming a sibling or even yourself as beneficiary — you could use it for a short-term course abroad. Luna: Self-beneficiary for a study abroad program — that's a loophole more parents should know about. Lucas: Absolutely. And don't forget state tax deductions: most states that offer a deduction for 529 contributions allow it regardless of where the beneficiary studies, as long as it's a qualified institution. Luna: So you could get a state tax break on contributions even if your child ends up studying in Spain. Lucas: Yes. That's a powerful combo: a deduction today and tax-free withdrawals tomorrow for a global education. Just make sure the foreign school is on that list before writing the check. Luna: And maybe call your 529 plan administrator to confirm how they handle foreign currency conversions. Lucas: Great point — that's another logistical wrinkle. Some plans issue checks in U.S. dollars; others can wire in local currency. Fees matter. Luna: So bottom line: a 529 plan can absolutely fund study abroad, but you need to do your homework on the school's eligibility, the expense types, and the disbursement process. Lucas: Exactly. It's not automatic, but it's very doable. And with fall semester planning starting now, it's the perfect time to explore options.