Backer Review: 529 Plans The Easy Way

Backer is the easiest way to get started saving for college in a 529 plan. If you're looking for an easy way to save for college - and want a solution that makes it easy to get family and friends involved, then this is it.

Backer is a platform that allows you to create a 529 college savings plan, and then provide a unique link to family and friends where they can contribute easily. This is the perfect solution for parties, holidays, and graduations!

If you're ready to start saving for college, check it out. Skip the review and open a Backer account here >>

Who Is Backer?

Backer describes itself as the robo-advisor for 529 college savings plans. Backer is a trade name of Principly, Inc., which is a Registered Investment Adviser. They were founded in September 2016 and are based in San Francisco, CA.

Backer was formerly CollegeBacker. According to Founder and CEO Jordan Lee:

"We changed our name to reflect the fact that 529s can now be used for more than just college, and to emphasize what's most unique about our service, that you can build a team of backers for your child."

Their mission is to make college affordable for every American family.

What Do They Offer?

Backer manages 529 college savings plans with one difference from other 529 plans — they make it very easy for multiple contributors to participate in a single plan. This means family and friends can contribute directly to your child’s college fund.

529 Plan Contributions and Gifting

If you don't have a 529 plan, Backer can help you setup a 529 plan for your child. They make it incredibly easy, and use a top-notch plan based in Utah.

If you already have a 529 plan in certain states (most of them at this writing), you can also link your 529 plan to your Backer account to unlock the features below - specifically easy contributions, gifting, Backer Bucks, and more.

Using a link provided by Backer, family and friends can make one-time or recurring contributions. There is no minimum requirement for contributions.

Plus, they can make these contributions by credit card, debit card, or bank transfer. It's very easy to contribute!

Backer doesn't hold your funds directly - your funds are held within the 529 plan you choose.

Backer’s role is to:

• Simplify the process of opening a 529 plan
• Advise on low-cost funds
• Reduce risk as the beneficiary ages

This is all automated and doesn’t involve speaking to an investment advisor.

Connect Your Existing Account

If you have an existing 529 plan account, you can connect it to Backer and reap the benefits of using their service (such as Back Bucks, gifting, and more).

529 Plans That Can Be Linked To Backer:

iShares 529 Plan - Arkansas
ScholarShare College Savings Plan - California
Scholars Choice College Savings Program (Advisor-sold) - Colorado
Stanley G. Tate Florida Prepaid College Program - Florida
Idaho College Savings Program (IDeal) - Idaho
CollegeChoice 529 Direct Savings Plan - Indiana
College Savings Iowa 529 Plan - Iowa
Kansas Schwab 529 College Savings Plan - Kansas
Kansas Learning Quest 529 Education Savings Program (Direct-sold) - Kansas
Minnesota College Savings Plan - Minnesota
Missouri's 529 Education Plan (MOST) - Missouri
TD Ameritrade 529 College Savings Plan - Nebraska
USAA 529 College Savings Plan - Nevada
Scholar's Edge (Advisor-Sold) - New Mexico
College SAVE (Direct-Sold) - North Dakota
New York's 529 College Savings Program Direct Plan - New York
New York's 529 Advisor-Guided College Savings Program - New York
Pennsylvania 529 Investment Plan - Pennsylvania
CollegeBound 529 (Advisor-Sold) - Rhode Island
TNStars College Savings 529 Program - Tennessee
my529 - Utah
Invest529 - Virginia
SMART529 Direct - West Virginia
SMART529 Select - West Virginia

Backer Bucks Program

One of the other great features of Backer is Backer Bucks. Back Bucks is a program that allows you to earn cash back rewards that can be deposited directly into your 529 plan if you shop online through the Backer Bucks portal. 

This is a simple and easy way to save for college by getting rewarded for the shopping that you already do.

Plus, some of their partners include financial services, such as TurboTax for doing your taxes. Why not get rewarded for doing something you have to do?

Backer Safe Program

Backer recently launched the Backer Safe program - which is an FDIC insured 529 plan option. This option cannot lose value, but the growth is akin to a high yield savings account. This could be a good option for families that are afraid of losing principal, or have students that are close to needing to withdraw funds to pay for college.

What Is a 529 Plan?

529 plans are offered by states. You can invest in the 529 plan your state offers or one offered by another state. These plans are similar to a Roth but for education. Contributions to 529 plans grow tax-free and withdrawals are tax-free when used for qualified educational expenses.

Tax benefits are at the federal level. But about two-thirds of states also allow tax savings. The following states do not offer state tax benefits: Alaska, California, Delaware, Florida, Hawaii, Kentucky, Nevada, New Jersey, North Carolina, South Dakota, Tennessee, Texas, Washington, and Wyoming. Even if your state does not offer state tax benefits, you can still set up a 529 plan through Backer.

Contributions into a 529 plan are considered gifts. For 2019, an individual can contribute up to $15,000 per child/account without gift-tax consequences. If you are married and have two grandchildren, you and your spouse can contribute $15,000 per child. That’s a total of 4 x $15,000 = $60,000.

There is also the 5-year election. This election allows you to contribute a large lump sum in one year and spread it across five years. For 2019, the 5-year election limit is $75,000. For example, if you contribute $60,000 in 2019, you can spread it across 5 years, turning the single contribution into $12,000 annual contributions.

Because the annual limit is $15,000, this leaves $3,000 available in unused exclusions per year. Some families use this election to shelter funds from estate taxes. It’s best to first speak with an accountant before applying this election.

Related: 529 Plan Contribution Limits

529 plans can impact a student’s FAFSA, but it should be minimal.

Money from a 529 plan can be used for tuition, books, and other related higher education expenses, including graduate school. They can also be used for elementary and secondary school tuition. Room and board qualify if the student is enrolled at least half-time. Be sure that the school is eligible for Title IV federal student aid.

What happens if the beneficiary doesn’t go to school? Not to worry, money in a 529 plan doesn’t expire. You can change the beneficiary to someone else who might be able to use the funds.

If you decide to withdraw the money and not use it for college expenses, you’ll incur a 10% penalty plus taxes on the withdrawal at your income tax rate. If the beneficiary decides to take money out of the plan for non-qualified expenses, they’ll have to pay a 10% penalty and will be taxed at their income tax rate.

If you are familiar with UGMA/UTMA and Coverdell plans, 529 plans differ in several ways. Parents own the 529 plan, not the child. There are also no strict eligibility requirements or low contribution limits.

Are There Any Fees?

Backer currently charges $1 per month per family. That's only $1 for all the plans connected within the family.

How Do I Open an Account?

You can open an account here.

Is My Money Safe?

Yes — the website uses bank-grade encryption and identity services.

If something happens to Backer, your 529 plan is safe because it is independent of Backer.

If for some reason the recipient doesn’t redeem your gift within 90 days, you’ll receive a refund. You can also transfer your 529 plan if you decide to discontinue using Backer. Email them at support@backer.com to initiate the process.

Is It Worth It?

If you’ve been considering investing in a 529 college plan, Backer is certainly worth a consideration.

The only other app that does similar is U-Nest, but they don't offer 529 plans, only UGMA accounts, which don't have the same benefits.

Simplification in opening a 529 plan, lower fund fees, and reduced risk as the beneficiary ages are all great reasons to use Backer.