Getting the Most Value for Your 529 Plan: Go Abroad
You have been saving up for your child’s education for years. With escalating US university costs, you may be searching for ways to maximize the value of your 529 savings plan for your student. One creative idea is to pivot towards getting the entire degree abroad. Why? Many universities abroad tend to be more affordable than their US counterparts and about 400 international universities are approved for 529 Plan use. Plus, an undergraduate degree can be completed in three years instead of four. All of this leads to your 529 plan stretching further. As a bonus, many universities abroad have programs in English, including countries where English isn’t the primary language.
What is the value of a degree abroad?
Degrees abroad generally have great value: reputable education and more affordable undergraduate and graduate degree programs, compared to many US universities. Plus, undergraduate degrees abroad are generally completed in three years, thus ensuring additional cost savings. Of course, committed students walk away with a wealth of global skill-sets that will help them remain competitive in our globalized world.
Are all foreign universities eligible to receive 529 Plan withdrawals?
Not all foreign universities have gone through the FAFSA approval process with the US Department of Education. However, the good news is that roughly 400 international universities are approved by the US Department of Education, have a FAFSA code and are therefore eligible to receive 529 plan monies. So, you could use the current 529 funds for a qualified foreign university. This often will be for a cheaper price than a US university, particularly if your student graduates in three years, the norm abroad for an undergraduate degree.
Is there anything I should be cautious of when using my 529 Plan to pay for university abroad?
Be aware of the rules governing qualified and non-qualified 529 withdrawals. After determining if your international university is an eligible institution, then pay attention to:
a) What is a qualified expense; and
b) How do I appropriately manage payments so withdrawals are qualified, thus earnings are tax-free?
Qualified expenses include tuition and mandatory fees, certain room and board costs (for students who are enrolled at least half time, which is also a requirement for student visas), and books and supplies, including technology such as a computer and access to the internet. According to Andrea Feirstein, a leading 529 Plan expert of AKF Consulting, “For the 529 withdrawal to be free from taxes (and thus a qualified withdrawal), the expenses must fit the definition provided in Section 529. Also, the withdrawal payment should be made directly to the eligible institution or directly to the beneficiary for further payment to the institution. If a parent has the withdrawal paid directly to them (to then write a check to the institution), that withdrawal will be presumed to be non-qualified. In the case of a future audit, the parent would have to show that the funds ultimately were used for the beneficiary’s qualified expenses. A better way: Your student must work directly with the foreign university to ensure payments happen between the 529 plan and the FAFSA-approved university, with your student as a beneficiary.”
What happens if my preferred foreign university doesn’t accept 529 plan?
Don’t despair if your desired university abroad doesn’t accept 529 plan monies, as there may be a creative solution. Many international universities that don’t accept 529 plans tend to have extremely affordable undergraduate degrees (for example, $5,500/year x 3 years). Sometimes it can be more efficient to transfer the 529 plan to another member of the beneficiary’s family. Again Andrea Feirstein, “In this case, the transfer or “rollover” is done on a tax-free basis.” Therefore, you could then pay tuition directly to the cheaper international university while depleting any funds in your 529 plan on a more expensive institution (in the US or abroad.)
Show me the math for international universities. What should I expect to pay?
Let’s do some sample math. In the examples below, both foreign universities are ranked in the Times Higher Education world rankings. Both foreign universities provide good value (in comparison to US prices) but Foreign University B is extremely affordable and may be worth not using your 529 Plan savings, assuming you can transfer the funds to another family member.
Foreign University B: Doesn’t accept 529 plans, so pay out-of-pocket
Tuition - $5,500/year x 3 years*
*Not as many scholarships available.
Housing - $130/month
Meals - About $10-20/day
Books - $300/year
Computer: $1,500/1 time
Foreign University A: Accepts 529 Plans: All expenses are “qualified”
Tuition: $18,500/year x 3 years*
*Before scholarships awarded (-$3,000)
Housing - $360/month
Meals - About $10-20/day
Books - $300/year
Computer: $1,500/1 time
**Please note that all figures above are based on current exchange rates and are subject to fluctuation. Tuition costs can vary slightly by major, as can any scholarship awards. Both locations are “self-catered” so students cook for themselves, although there are student canteens, as well.
OK, I’m curious. What are the next steps?
Affordable Degrees Abroad’s mission is to help US families find good universities abroad without breaking the bank. Schedule a free call here to begin the process.
