How to Manage 529 Plans as an Ex-US Resident Living Abroad

A 529 plan is a tax-advantaged savings plan designed specifically to help families save for education expenses. Named after Section 529 of the Internal Revenue Code, these plans offer federal and, in some cases, state tax benefits, making them an appealing option for US residents saving for college or other higher education expenses. 

Funds in a 529 can be used for qualified education expenses like tuition, room and board, and textbooks at eligible institutions. Originally just for college costs, they can now be used for all education levels K-12 and even for apprenticeship programs.

While 529 plans are a great savings tool for US-based families, once you’re living outside of the UK, the tax implications and access rules can become more complicated.

So, if a 529 plan is going to complicate things, why bother over a simple savings account? There are a number of reasons, such as:

One common question for ex-US residents is whether they can use their 529 funds to pay for education outside the US. The good news is that many 529 plans allow funds to be used for qualifying institutions abroad. 

Many UK universities, as well as other foreign educational institutions, are eligible to receive 529 funds, as long as they are recognized by the US Department of Education. If you’re planning to use your 529 savings to fund education in the UK, check that your chosen institution is eligible. You can find the list of qualifying institutions in the 2025/26 year here, including many popular options such as the University of Cambridge, London School of Economics, and the University of Saint Andrews.

While the tax benefits of 529 plans are straightforward for US residents, the situation becomes more complex for ex-US residents living in the UK. Here’s what you need to know about tax treatment on both sides of the Atlantic:

The tax advantages of a 529 plan generally remain intact for US citizens, even if they are living abroad. As long as funds from the 529 are used for qualified education expenses, withdrawals will be tax-free at the federal level. However, you will still need to report the existence of the 529 plan on your US tax returns. 

It’s essential to keep accurate records of all withdrawals and qualified education expenses, especially if you’re planning to use the funds in a foreign country. In some cases, contributions may also qualify for state-level tax deductions, depending on the rules of the state where the plan was opened.

Keep in mind that qualified expenses include tuition fees, room and board, books and computers, but don't cover costs like insurance, sports and activities or travel costs. Any withdrawals for expenses that are not for qualified education costs will attract US income tax plus a 10% penalty charge on the earnings portion of the withdrawal.

In the UK, 529 plans don’t receive the same tax-exempt status as they do in the US. While the US views 529 plans as tax-advantaged for education, HMRC treats them differently. Generally, UK residents are taxed on global income and gains, which may include any growth within a 529 plan. This means that, depending on your circumstances, you could be liable for UK tax on any realized investment gains within the plan, even if the funds remain invested and are not withdrawn.

When funds are withdrawn from a 529, the UK may levy further income or capital gains taxes (where applicable), as it doesn’t recognize the tax-free withdrawal benefit that the US offers for qualified education expenses. 

The exact tax implications depend on factors such as your residency status, tax treaties, and the way gains are classified, so it’s advisable to seek professional tax advice to avoid unexpected tax bills.

Life is unpredictable, and sometimes plans change. If your education plans shift, or if you decide not to use the 529 funds for educational expenses, it’s important to know your options. Here are some rollover and alternative options if you find yourself in this situation:

For ex-US residents living in the UK or anywhere else in the world, managing a 529 plan can be a bit more complex due to the differences in tax treatment and access rules. While the 529 plan remains a useful tool for education savings, expats need to consider not just US tax treatment to decide on whether it remains effective for them.

If you plan to use your 529 savings for education in the UK, ensure that your chosen institution qualifies, keep detailed records of your withdrawals, and consult a tax professional to help you navigate the tax obligations in both the US and the UK. If your education plans change, consider exploring rollover options or alternative investments to make the most of your savings. 

At Hoxton Wealth, we specialize in helping ex-US residents manage their investments and education fee planning with a cross-border perspective, with offices in the US, UK, Australia, Cyprus and South Africa. 

Whether you’re looking to maximise the tax benefits of your 529 plan or considering other investment strategies, our team is here to help you navigate the complexities of expat financial planning. Book a free initial consultation today.