I’ve heard about credit cards that deposit money into 529 plan accounts instead of offering air or hotel points and they have always seemed like a reasonable option for some incremental savings. Then last week I met with a client who uses one and has over $16,000 in a 529 account, just from credit card points! That is free money on a pretty grand scale.
These cards work like any other reward credit card: for every dollar you spend, some amount gets kicked back to you in the form of a reward, in this case a contribution to your 529 account.
There are several big players in this space, including UPromise and Ufund. Each offers slightly different rewards: Fidelity’s Ufund 529 card, for example, gives a straight 2% back to your 529 account on all purchases. Upromise offers 1% for most purchases, but up to 10% for others. In addition, Upromise lets college graduates use the rewards to pay down student loan balances. Your shopping patterns will determine whether these cards are a good choice to begin with and if so, which one is likely to generate more savings. This is by no means an exhaustive list of such offers.
Of course, this is all predicated on responsible credit card use: you pay your balance off every month and don’t start racking up debt with big, crazy purchases just to get 2% deposited into your 529 account. But for those of us already putting, for example, cell phone bills, orthodontia and club soccer fees on our credit card, getting 2% of our regular monthly purchases for college can add up quickly.
And remember: the limit on 529 contributions is pretty high (typically $375,000) and it’s per state. Which is to say, if you have an Oregon 529 account and open a Fidelity Ufund account that deposits into the Massachusetts 529 plan, you could theoretically max out both. Needless to say, college would be over-funded unless your child is going to pursue multiple graduate degrees, but that’s an unusual circumstance. Most of us are in fact funding our 529 accounts well below the maximum.