CollegeBacker Review: Save for College with Family and Friends
SmartPath occasionally reviews apps and services based on the needs of our clients. SmartPath has no affiliation with this product or service and receives no compensation or benefit from the provider. Instead, we just wanted to share our thoughts in an effort to help you get better with your money.
We all know that college tuition isn’t cheap, and the earlier you start saving, the better. Perfect for a family with younger children, CollegeBacker allows you to crowdfund college savings and invest those dollars in a top-tier 529 college savings plan.
Helping your child earn a college education is also important to the entire family, and CollegeBacker empowers you to work as a team. You can invite grandparents, an uncle or aunt, and other close friends to follow your child's progress and contribute to their higher-education investment.
What are the benefits of a CollegeBacker savings plan?
Tax advantages. Money in 529 plans used for college costs are exempt from federal taxes, and are typically also exempt from state taxes when used to pay for qualified education expenses. This means your investment can grow and reach its full potential without taxes eating into your returns.
Return on investment. Although investing always involves a certain degree of risk, over time investment in a 529 plan is likely to yield significant returns. When coupled with the tax advantages noted above, 529s offer a higher expected ROI for college savings than either savings accounts or traditional stock market investments.
Optional "giving" fees. CollegeBacker operates on a pay-what-you-can model, meaning you can pay a monthly fee of as little as $0 and up to $10. But, 10% of any monthly contribution you make will go towards helping low-income families prepare for college.
No contribution limits. Besides the $15,000 federal gift tax exclusion limit, there’s no cap to how much you can contribute each year.
No minimum balance. You can open an account in about five minutes with as much or as little as you want.
What should you look out for?
Limited use. There are penalties for withdrawing the earnings to pay for non-college related expenses; specifically, taxes and a 10% penalty, if you use the funds for something other than qualified higher education costs. 529s offer quite bit of flexibility--they can be used to pay for graduate school or the education of other family members--but they are not the optimal savings method for other financial goals like retirement.
No guaranteed return. Unlike savings accounts, CDs and money market accounts, 529s don’t have guaranteed returns.
Management fees. 529 plans come with administration fees. Many fees are modest, especially compared with the tax benefits and investment gains, but there is still a great deal of variability between plans.
Credit/debit fees. There’s a 2.9% plus $2.95 fee when you or anyone else makes a contribution by credit or debit card.
Ready to open an account?
CollegeBacker makes it easy to open a 529 savings plan online:
- Visit the CollegeBacker website and click "Start Saving for College Today"
- Create a plan by entering your child’s age and savings goals, then click "Create Profile"
- Enter your personal information and beneficiary details then click "Create Fund"
- Invite friends and family to contribute!