U.S. Expats – College Planning

Guest post by John Ohe, IRS Enrolled Agent and chartered Financial Analyst.

John Ohe 1You got kids. They may be small now, but before you know it, they’re off to college. Unfortunately, the cost of a university degree in the United States has become incredibly daunting. Therefore, planning for college expenses is imperative, and getting an early start provides an absolute advantage.

According to the College Board, the average cost of tuition and fees for a private university in the United States is slightly over $30,000 per year (excluding room and board). Public schools are more affordable, but still clock in at over $22,000 per year (out-of-state tuition). Furthermore, every year the cost of tuition increases at a rate much higher than inflation.

In this article, we discuss 529 plans for U.S. expats. A 529 plan is basically a savings account established for the purpose of funding a college education. There are two types of 529 plans; however, the main ones are sponsored by individual States.

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Why are 529 plans great? From a tax advantage, there are clear advantages. Account balances grow tax deferred. And when the proceeds are used to pay for qualified college expenses, there are no tax consequences. So if you can afford to save for college, a 529 plan is a fantastic vehicle for doing so.

529 Plan – Basics You Should Know

Purpose
• To fund a child’s college education
• If the child beneficiary does not attend college, then the funds can be used to pay for another family member’s college expenses (e.g., a sibling)

Maximum Contribution
• Up to $14K per child (without triggering gift tax)

Tax Benefits
• No tax deductions on federal return; however, possible on State return
• Earnings grow tax deferred
• No tax on distribution (for qualified college expenses)

For U.S. citizens living abroad, setting up a 529 plan can be slightly tricky. That is because many expats do not have residency in a particular state. In these cases, we recommend establishing a 529 plan with Vanguard (one of the largest mutual fund companies in the world). Vanguard 529 College Savings Plans are sponsored by the State of Nevada, but is open to any investor. Vanguard is renowned for its low fee structure, so more of your money goes toward covering college expenses. For more information, go to: https://investor.vanguard.com/what-we-offer/college/overview .

Other articles by this Author

FATCA – Practical Guide

Free Money From the IRS – Child Tax Credit

U.S. Expat Taxes – An Introduction

Buying and Selling Real Estate (Foreign or Domestic) from a Tax Perspective

This article was written by John Ohe (IRS Enrolled Agent and Chartered Financial Analyst). John is a partner at Hola Expat, which specializes in preparing tax returns for U.S. expats. If you would like to submit a tax-related question, email: info@holaexpat.com.

Disclaimer: The answers provided in this article are for general information, and should not be construed as personal tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved.

About Retire Early Lifestyle

Billy and Akaisha Kaderli retired two decades ago at the age of 38 and began traveling the world. As recognized retirement experts and internationally published authors on topics of finance and world travel, they have been interviewed about retirement issues by The Wall Street Journal, Kiplinger's Personal Finance Magazine, The Motley Fool Rule Your Retirement newsletter, nationally syndicated radio talk shows and countless newspapers and TV shows nationally and worldwide. They wrote the popular books The Adventurer's Guide to Early Retirement and Your Retirement Dream IS Possible.
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