EducationPersonal finance

Best 529 Plans for Expats in Hong Kong

The Best 529 Plans for Expats can fund four or more years at America's finest universities, including UC Berkeley

529 plans are one of the most tax-efficient ways for US taxpayers to save and invest for college and other higher education fees.  The best 529 plans for expats overlap with the best 529 plans US residents are likely to choose, with the exception of residents of US states with high state and local income taxes whose states offer state and local tax benefits for using in-state plans.

In a nutshell, a 529 plan is a tax-deferred or tax-free account, similar to a Roth IRA, that generally allows parents or other family members to save and invest for the benefit of a child or family member.  Tax deferral and exemption, with a relatively high limit on contributions (US$70,000 up-front while spreading out gift tax exclusions, with total account maximums over US$200,000), is the main benefit of 529 plans in exchange for the limitations on how the accounts can be invested, what qualified expenses they can be spent on, and which other family members can use the account if the originally intended member doesn’t go to college or doesn’t need the money.   For example, my wife and I have often thought we might be able to spend excess 529 funds on our nephew, or even enjoying college classes ourselves, if our own children somehow don’t spend it all on college.  I have mentioned earlier how China has been one factor driving up tuition fees at US universities, and how it may be worth looking at universities in non-obvious places for better value higher education.

When updating my own list of the best 529 plans for expats living in Hong Kong but planning to send their children to US universities, I start with Clark Howard’s list of the best 529 plans, where the “Dean’s List” includes the New York and California Direct 529 plans that have long been at the top of my lists for their low-cost fund options.  I personally have also invested in the Private College 529, which is like a pooled pre-paid college plan allowing me to lock in the tuition rates as of the year of my contribution (for example, I locked in the cost of about one year at Princeton, Cal Tech, or Stanford at their 2007 rates with my first contribution that year), but only at their list of participating universities.  529 originally referred to pre-paid tuition plans like these, but then eventually came to include the tax-deferred mutual fund plans most people think of.

529 plans generally fall into “direct sold” or “advisor sold”, with the latter more accurately called “broker-sold” with a commission on funds sold paid to the advisor for their services.  For fee-based advisors like myself, this has resulted in a gap where we try and guide clients to the best direct sold plans, but can not offer full services on the advisor sold plans in any way compatible with our no-commission business model, as financial planning author Michael Kitces describes in this article.

Do you have any questions about what are the best 529 plans for expats?  Feel free to contact me, I look forward your comments.


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