What are good practices/pitfalls to avoid when paying college expenses from a 529 account to a non-US university in a different currency? Thanks.
I am not sure that I have a complete list of things to consider. However, we have been using 529 funds to pay for university in Canada.
One issue is to make sure that your university is recognized by the 529 people. Before my daughter went off to university, I did a google search and found a list on line of the universities in Canada that were acceptable for a 529 funds. It included every university in Canada that I ever heard of plus quite a few more. This was quite a while ago, but my recollection is that the same list included quite a few universities outside of North America.
Every time I pay a bill for the university in Canada, I print out the bill. Then I look up the current exchange rate, do a conversion, and write down what the equivalent cost is in US dollars on that date (bills are of course in Canadian dollars). We keep this with our tax records. Exchange rates do change over time.
I opened a bank account in Canada to pay for university in Canada. We of course have to report this on our tax returns each year. However, the amount that I have up there is very small and it is a non-interest-bearing account, so the tax consequences are only a matter of reporting. Having a local bank account makes it a lot easier to pay bills or to quickly get C$$ to my daughter if she needs it for some purpose. It is also useful when visiting, although due to COVID we have not visited for a while.
The last thing that I ran into is that university in Canada is so inexpensive, at least for us, that we are not able to use up the money in the 529 plan. Fortunately you can transfer 529 funds into an account for a sibling, and in our case the sibling is about to start in a DVM program which will quite easily use up what is left in both daughters’ 529 plans. One alternative would be to keep the extra for graduate school.
I would be interested in hearing what others have run into with regard to paying for university outside of the US, whether from a 529 or otherwise.
Similar experience for me using 529 funds to pay for college in UK.
Had to do the initial check that university was recognized. If university could participate in US student loan programs, it checked that box.
I do the same with an exchange rate screen shot with the tuition bill to show that amounts match up to USD taken from 529. I use Transfer Wise to send funds to son’s UK bank account and save a screen shot of that as well to double verify amounts.
Son has a UK bank account to pay for tuition and living expenses and we have to file the overseas account form on tax returns each year, but no real cost for doing that.
If my D22 doesn’t go to the US, she’ll be attending a university in the UK (the ones she’s interested in are all recognized under the 529 program).
Both of you appear to make disbursements from the 529 account to your own bank account (rather than directly to the university). Does this approach make year-end tax reporting more complicated?
Also, given fluctuating exchange rates, how do you get the amount required exactly right (how much to withdraw from 529 account (in USD) to pay, say, a GBP 9,300 tuition bill)? Or do you slightly undershoot to avoid any tax penalty?
Haven’t had any complications on my taxes from taking that approach. Just keep all the right back-up.
I undershot on the 529 WD and topped up the difference myself. Oxford charges fees in a lump at the start of Michaelmas (except for the last two terms accommodation)so i just budgeted how big a 529 WD I would make in September and funded the difference when needed. With the international fees, the 529 only lasted for two years.
Thanks. One further question - does the sequence of payment/transfer matter, whether for US or non-US universities (for example, can I first pay D’s tuition to her university from my bank account and then disburse an equivalent amount from the 529 account to my bank account)?
Guidance I have from my accountant is that it doesn’t as long as it all happens in the same tax year. YMMV.
Got it. Thanks again.