If you’re an expat with young children, you can't afford to ignore a major expense looming in the future–college education for your kids. Apart from building a home and planning for your retirement, funding a child's education could be the biggest expense you’ll face.
Whether your child wants to go back to the United States for college or wants to study elsewhere, the price of universities is rarely inexpensive. Here’s what you can do now to prepare.
Contribute to 529 Plans
You can make contributions to any state's plan and use it to fund your child’s education. Make sure that you don't go over the gift tax limits in the US (these limits can be compounded for multiple years being saved in one) or your current resident country.
You can use your 529 plan at virtually any accredited public, nonprofit postsecondary institution. In fact, you can also fund education at several international facilities on the list. A great resource to find out if a school is on the listed below and if you select FC for the state it will list international facilities:
The tax benefits for 529 plans can be substantial as some offer state tax exemptions, but they always grow tax-free. They can also be used to reduce estate taxes as assets in 529s are not part of your estate.
There are several 529 plans available on the market. Look for one that has low administrative costs and offers you several investment options. You will need a dynamic fund mix to help you alter the investments as your child gets closer to needing the funds.
Alter the model over time moving to Lower-Risk Investments
Keep investments you have made with a view to your child's college education in line with the time the funds are needed. High growth investments should be used while your children are young and you have a long time horizon. As the date gets closer to sending them off to school, eliminate all high-risk investments and ensure that a market crash doesn't impact your child's education.
Focus on Currencies
When you invest in your child's education, make sure that you consider currency risk. In other words, you don't want to save only in American dollars, considering the volatility of international currencies over time. As the date gets closer, make sure that you manage risk towards the currency in which he or she will study. For instance, if your child is going to study at a French university, your investments should minimize your risk to the Euro. To better understand natural hedges on currencies, check out our youtube video on the subject here.