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With the growing cost of education and increasing concern about student loan debt, saving for college is on the minds of all parents today. Saving for college is essential in ensuring your child can pursue their education goals without incurring an unmanageable amount of student loan debt.
Even if you’ve already decided that a 529 college savings plan is the way to go, maybe you don’t know where to start or the thought of a complicated enrollment process is deterring you. Or, if you have an existing 529 plan, maybe you’d like to see it grow faster. In both cases, CollegeBacker could be right for you.
What is CollegeBacker?
CollegeBacker is an easy-to-use online platform that allows you to open or grow your 529 college savings plan. The San-Francisco-based startup’s mission is to make college more affordable for everyone. They have introduced 529 plans to low- and moderate-income families and helped people save more than $6.5 million for college.
In an estimated five minutes, parents can open a new 529 college savings plan or link an existing plan from 20 states. Parents are able to save for college in a tax-advantaged 529 plan, earn extra cash for college by shopping through their platform, and easily receive gifts from friends and family.
All of this can also be done online or within their free app, which is rated 4.8/5 in the App Store and 4.3/5 in the Google Play Store.
How CollegeBacker Works
CollegeBacker will select a 529 plan with low-fees and a good track record after you answer a few simple questions, such as your risk preference and state. Plans selected are age-based, and the risk is adjusted as your child gets older and closer to heading off to college. You can also link an existing 529 account from 20 states.
As with all 529 plans, contributions to your account grow tax-free and withdrawals are tax-free when used to pay for qualified education expenses. You can make contributions in the form of a lump sum (by debit or credit card) or link your bank account to set up regular monthly payments.
When it comes to security, CollegeBacker says they employ 256-bit encryption and bank-level security to ensure all sensitive financial data is kept safe.
Pros of CollegeBacker
Earn even more cash for college with BACKER BUCKS
CollegeBacker’s Backer Bucks program allows you to shop online or on the mobile app and earn a portion of your purchase towards your college savings. Visit the Backer Bucks portal to check out offers at over 100 retailers from every category – home, apparel, food and drink, entertainment and financial services. For example, you can earn up to 4% of your purchase back while shopping at Office Depot or 3% on your back to school purchase from Crayola. Other popular brands include Ace Hardware, Turbotax, Party City and Walmart. New partners will be added every month.
Family and friends can easily help grow your savings
Watch your savings grow even faster with the help of your loved ones. CollegeBacker families who use the gifting feature save 43% more on average. CollegeBacker makes the process simple for family and friends to send a gift that goes directly to your child’s college savings account. For starters, each child gets a customizable gifting page with an easy to remember URL link.
Family members can give a one-time gift for a birthday or holiday, or even be added to give recurring contributions. Gifts, by credit or debit card or by bank account, can be sent via a link or easily through a personalized email. The link can be shared via text, email or social media, making it an efficient way to get people to send a gift.
Plus, gift givers are able to track your saving progress, so they’ll feel like they are a part of the process. Each gift giver can contribute up to $15,000 per child without gift-tax consequences.
Use CollegeBacker’s calculator to keep you motivated
CollegeBacker has a helpful calculator to make it simple to make a game plan on how much to save every month to achieve your goals, compare a 529 plan account versus a traditional savings account, and see how contributions from family can make an impact.
For example, if you have a 2-year-old child and can contribute $50 per month, the calculator estimates that you’ll have $17,600 when your child is ready for college, compared to just $9,930 if you opt for a traditional savings account. Let’s say you have a grandparent who is able to contribute $25 per month, the calculator estimates that the $17,600 is now increased to $26,400.
No more excuses
CollegeBacker says it takes just 5 minutes to start saving in a 529 plan, even for a future child. In fact, 20% of College Backer users have started saving even before their child was born. There are no minimum balance or contribution requirements.
Even if it’s a baby step, you can still make your way towards increasing your college savings. CollegeBacker allows you to contribute as little as $5 per month, which makes saving for college feel attainable for everyone.
Cons of CollegeBacker
Limitations on connecting your plan
If you already have an existing 529 plan, you can connect your plan, but only from specific states. These states include:
- Arkansas
- California
- Colorado
- Florida
- Idaho
- Indiana
- Iowa
- Kansas
- Minnesota
- Missouri
- Nebraska
- Nevada
- New Mexico
- New York
- North Dakota
- Pennsylvania
- Rhode Island
- Tennessee
- Utah
- Virginia
- West Virginia
If a user has a 529 plan from a state not on the list but has their heart set on CollegeBacker, there is the option of opening a second 529 plan.
Limited connection with prepaid tuition plans
While CollegeBacker does have the ability to support some prepaid tuition plans, it does not support all.
No in-person guidance
The fact that CollegeBacker is completely online may be a pro or con for you, depending on your personal preference. The process of opening an account is all automated, which could be a drawback for those that prefer a personalized, face-to-face experience.
Fees
While there are no fees from CollegeBacker, you will pay a 10% fee, plus taxes, if you end up withdrawing from your 529 plan to pay for non-qualified expenses, which is the same for any 529 account. You also may have fees from your investment selections.
Usual risks of a 529 plan
As with any 529 plan, there are risks associated with it. You can use your savings tax-free only for qualified education expenses.
See also: Pros and Cons of Using a 529 Plan
Bottom Line
If you have determined that a 529 plan is right for you, CollegeBacker could help simplify opening an account. The ability to also use their BACKER BUCKS program and simplified gifting process could be small steps to help a savings plan grow substantially.
At Savingforcollege.com, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.
