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Yahoo
16-06-2025
- Business
- Yahoo
Can I use a 529 plan to study abroad?
You can use a 529 plan for study abroad, but only at schools eligible for Title IV federal student aid. Qualified expenses include tuition, fees, book and room and board — but not travel, health insurance or daily living costs. Misusing funds can trigger income taxes and a 10 percent penalty. 529 plan withdrawals may be taxed by the host country, even if they're tax-free in the U.S. Yes – you can use a 529 plan to help pay for a study abroad program if the overseas institution is eligible for Title IV federal student aid, but using these funds internationally comes with strict rules. Not all schools or expenses qualify, and misusing the money could cost you in taxes and penalties. Before you book your flight, be sure to confirm your study abroad program is hosted at an eligible institution under the Department of Education. Make sure the funds are only being used for qualified expenses, and you understand which expenses are not covered. A 529 plan allows you to save money for 'qualified' education expenses. Generally, those include the normal costs of attending an educational institution. >>Learn more: Opening a bank account while abroad To count as qualified, expenses must be required by the school and directly related to your enrollment. Eligible costs include: Tuition and fees Books, textbooks, supplies and equipment Room and board, if enrolled at least half-time Computers and internet access Bankrate's take: If you're living off-campus, your rent must fall within your school's published room and board allowance. Save receipts in case of an audit. Even if the following are necessary costs while studying abroad, they cannot be paid with 529 funds: International health insurance or medical costs Flights and transportation Basic living expenses (groceries, clothing, toiletries) Cell phone plans Sports and activity fees If you use 529 funds to pay for these nonqualified expenses, the IRS will apply income tax to the withdrawals, as well as a 10 percent penalty on the earnings portion of the withdrawal. Covered by 529 Not covered by 529 Tuition and fees Flights and transportation Books and supplies Health insurance Room and board (must be part-time or full-time students) Daily living expenses (groceries, clothing, toiletries, etc.) Computers and internet Cell phone bills Sports and activity fees You can't 'double-dip' by claiming the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC) on the same expenses you pay with 529 funds. If you use 529 funds for expenses already covered by those credits, those withdrawals may become taxable. Here's a step-by-step guide to make sure your withdrawal is tax-free and properly documented: Confirm school eligibility: Use the Federal School Code Search, which has the unique school codes assigned by the U.S. Department of Education to schools included in the Title IV federal student aid program. Get an official cost of attendance: Request a breakdown of qualified expenses from the school, including room and board limits. Calculate your qualified expenses: Only include tuition, fees, book and room and board. Exclude unqualified costs like travel or food. Withdraw only what's needed: Request a distribution from your 529 plan administrator, specifying who receives the funds — either the student, the school or both. Keep detailed records: Save receipts, invoices and course requirement lists. You may need them if the IRS ever questions the withdrawal. Using a 529 plan to fund study abroad can make sense — but not always. Here's what to consider. Your school abroad is Title IV eligible. You're earning a full degree or completing a semester abroad through a partner program. You want to avoid loans and already have funds saved in your 529. You're using funds for tuition and qualified room and board, not daily expenses. You're attending a school that isn't Title IV eligible — your withdrawals will be taxed and penalized. Most of your expenses will be for travel, insurance or other unqualified costs. You're participating in a short-term third-party program with hard-to-document expenses. You plan to take advantage of the AOTC or LLC tax credits and want to avoid overlap. Yes – you can often use federal financial aid for international schools, but only if the institution participates in the Title IV program. Eligible aid includes: Pell Grants Direct Subsidized and Unsubsidized Loans PLUS Loans Bankrate's take: Graduate students may have different aid limits, but many federal programs are still available abroad. Always confirm with your school's financial aid office. If a 529 plan won't fully cover your costs or your school isn't eligible, here are other ways to fund your experience: Apply for scholarships The U.S. Department of State provides a list of scholarships available for students studying abroad in different countries, typically provided by foreign governments. Scholarship search engines can help you find financial aid from private organizations. Manage your expenses Unless your study abroad plans are already set in stone, consider going to a country with a lower cost of living. Compare program costs between universities and try to find the right fit for your budget. Get a job Depending on which country you're planning to study in, you may have opportunities to work while you complete your coursework. Research visa requirements beforehand to understand what your options will be. You can also take a break between semesters and work at home before you travel. Be forewarned that if you're caught working without a proper visa, you may be required to leave the country, even if you didn't finish your course of study. Stick to a budget Choose locations with a lower cost of living, avoid tourist-heavy cities and continue being intentional with your spending. Saving plans are one financial tool you can use to pay for study abroad programs and can be a useful way to cover the expenses of education overseas. Consider all costs, including taxes, when factoring your decision and determine if using a 529 plan to pay for your education makes sense for you. If a 529 plan isn't the best option, and you don't have enough savings or free aid to cover your program, keep an eye on current student loan interest rates. Exhaust all federal options before turning to private ones. What are the tax implications when using 529 funds for international schools? Qualified withdrawals from a 529 plan are tax-free under U.S. law, but some governments may tax the funds. Always check local tax laws before using 529 money overseas. How do I know which international schools are eligible for 529 plans? The funds from a 529 plan can only be used to cover the costs of international schools that are eligible for Title IV federal student this complete list of International schools participating in the Federal Student Loan Programs. Only schools on this list are eligible.
Yahoo
02-03-2025
- Business
- Yahoo
9 Tax Breaks the Middle Class Should Know Of
Paying taxes is never fun. But if you're part of America's middle class — defined as those who earn between two-thirds and double the median income — you could qualify for some tax breaks. Read More: Find Out: From tax deductions that lower your taxable income on a dollar-per-dollar basis to tax credits that reduce your tax liability, here are some tax breaks the middle class should know about. Did you pay education costs last year? You could be eligible for a tax break or two. 'There are almost too many tax breaks related to education to keep track of,' said Mark Luscombe, CPA and principal analyst at Wolters Kluwer Tax & Accounting. 'There are 529 plans and Coverdell Education Savings Accounts for tax-favored funding of future education expenses.' With a 529 plan, your contributions aren't tax deductible, but they can earn interest. You can use that money on qualified education expenses without paying federal tax. A Coverdell education savings account is also meant for qualified education expenses. Contributions aren't tax deductible, but distributions are tax-free when used for education expenses. Others education tax breaks include: American Opportunity Tax Credit: A maximum $2,500 per eligible student to help with the first four years of higher education costs. Lifetime Learning Credit: $2,000 tax credit to offset the cost of undergraduate, graduate and professional degree courses. It can also help with job-related education. Student loan interest deduction: If you've paid student loan interest, you could deduct up to $2,500 in interest paid during the year. U.S. Savings Bonds: Some savings bonds qualify for a tax break when used to pay tuition and other qualifying education expenses. Income limits and other criteria apply. Discover Next: If you're a middle-class business owner, you could potentially qualify for a tax break by switching from an S-Corp to a C-Corp. 'Since the [Section] 199A deduction hasn't really kept up with inflation, every year there are more taxpayers I see who would benefit from a C-Corp rather than an S-Corp,' said Crystal Stranger, senior tax director and CEO of OpticTax. This tax break works for upper-middle-class taxpayers, too. 'For upper-middle-class taxpayers, the tax rate is often lower, especially if there are international sales that will qualify for the 13.125% effective tax rate after applying the Foreign Derived Intangible Income discount,' said Stranger. 'And when selling the company only C-Corps are eligible for tax-free gains with the QSBS deduction, and S-Corp owners miss out.' There's also a tax break for saving for retirement. For example, you could get the Saver's Credit for contributing to a 401(k). This credit is up to $2,000 or $4,000 if married filing jointly. The exact credit amount depends on your income. Contributing to other accounts, like an IRA, could also get you a tax break. Any contribution to a Traditional IRA is tax-deductible. Annual contribution limits depend on the year and your age. For 2024, you can contribute up to $7,000 or $8,000 if you're 50 or older. As per IRS rules, you can deduct up to 50% of your adjusted gross income (AGI) in charitable contributions. Some people can only deduct 20% to 30%. To count, those charitable contributions must be made to a qualified organization like a public charity or private operating foundation. You'll also need to itemize deductions, rather than take the standard deduction. More From GoBankingRates6 Reasons Your Tax Refund Will Be Higher in 2025 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth How Much Money Is Needed To Be Considered Middle Class in Every State? This article originally appeared on 9 Tax Breaks the Middle Class Should Know Of Sign in to access your portfolio
