CollegeBacker Review: 529 Plans The Easy Way

CollegeBacker 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.

CollegeBacker 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!

Plus, if you sign up with CollegeBacker through our link, you get a $25 bonus when you fund your account. Skip the review and open a CollegeBacker account here >>

Who Is CollegeBacker?

CollegeBacker describes itself as the robo-advisor for 529 college savings plans. CollegeBacker 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.

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

What Do They Offer?

CollegeBacker 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.

Using a link provided by CollegeBacker, 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!

CollegeBacker doesn’t hold your 529 funds. Instead, they use a broker to custody funds. CollegeBacker’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.

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 CollegeBacker.

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.

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?

While CollegeBacker doesn’t charge any fees, you may incur fees from your investment selections. CollegeBacker’s fee is voluntary. You can pay them a monthly fee or not.

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.

From their ADV brochure, it looks as though a firm called Investment Choices provides custody of funds. CollegeBacker doesn’t custody any funds.

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

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 CollegeBacker. Email them at support@collegebacker.com to initiate the process.

Is It Worth It?

If you’ve been considering investing in a 529 college plan, CollegeBacker is certainly worth a consideration. Simplification in opening a 529 plan, lower fund fees, and reduced risk as the beneficiary ages are all great reasons to use CollegBacker.