I first read about Collegebacker through a Facebook group dedicated to answering questions about college. One member commented that they were paying for their daughter’s college with a 529 college savings plan they have with Collegebacker and avoiding loans. The member said the plan wasn’t started too long ago and have been able to seize up quite a bit money already because it was easy to set up, and it wasn’t a hassle to get family and friends set up to contribute. With a kid on the way to college, I was curious about how the process could quickly add up to help pay for college, so I looked into how Collegebacker 529 Plan savings account works and if it would make it easier to save for college.
Turns out that Collegebacker is an investment advising company operated by Principly, Inc., regulated by the SEC – the Security Exchange Commission – an independent Federal agency whose job is to monitor securities companies, self-regulatory organizations, and the stock markets in order to protect investors.
The company was founded in 2015 by Jordan Lee with the purpose to make it simple and easy for family and friends to invest in a 529 Plan and help pay for a child’s college education.
What is a 529 Plan?
529 Plans are tax-advantaged investment plans. What is enticing about these plans is that withdrawals for qualified education expenses remain free of federal income tax, among other benefits, terms, and conditions. Those expenses include K-12 schooling and college costs such as tuition, books, housing, and school supplies.
However, a recent study by financial services firm Edward Jones found “the number of Americans who do not recognize a 529 plan as an education savings tool has risen to 67% – a 5 percentage point increase from 2012, the year the survey was first commissioned. Of those who correctly identified a 529 plan as an education savings vehicle, almost half (48%) were unaware it can be used to pay for qualified K-12 tuition expenses; 50% of parents with children in the household younger than 18 said the same”.
Simply, families aren’t saving enough for college. The reasons? Lack of awareness. People still don’t recognize the benefits of a 529 Plan.
It makes sense that if you don’t understand something, especially when it comes to money, why invest in it. However, Collegebacker claims to make it easy for anyone to start a 529 Plan savings account in a way that is user friendly but also help anyone contribute to the account by setting up a gifting page. The twist is that there’s no need to get personal information about the student or to fill out an additional application in order to make contributions.
Typically, signing up with a 529 Plan savings account requires writing a check or in some cases linking a bank account. Collegebacker allows users to also use credit or debit cards as well as bank transfers – both to make an initial deposit or to gift contributions. However, there is a 3% processing fee on credit card transactions to over costs with the processor, but don’t charge a processing fee for ACH (bank) payments though.
Gift contributions is a great alternative for grandparents to contribute to their grandchild’s education without affecting the child’s financial aid, as it is better to make a gift contribution to Collegebacker rather than setting up their own 529 Plan on behalf of the grandchild.
The Wall Street Journal wrote an article about saving for college that explains how a grandparent’s 529 Plan savings account affects a financial aid package, giving this example:
“$10,000 in a student- or parent-owned 529 plan will reduce eligibility for need-based aid by as much as $564, while $10,000 in a grandparent-owned 529 plan will reduce aid eligibility by as much as $5,000.”The Wall Street Journal, Journal Reports: Funds & ETFS “How a Grandparent’s “529” Account Affects Financial Aid.
Surprising isn’t it? You’re trying to help the kid and instead it may work against them. This is why its best to consult with an advisor. Collegebacker cites that clients are advised on a non-discretionary basis, which means that you, rather than Collegebacker, will select your investment.
Just about every State as well as investment firms offer a 529 plan savings and other savings alternatives. This is why its so daunting to figure out what to do. Collegebacker’s blog compares several 529 plans and other investment options to help you navigate your choices.
Checkout Collegebacker calculator on their homepage. Plug-in some numbers to get an idea of what your savings will be.
According to their website, it takes 5 minutes to start saving:
To sign up you need your child’s social security number. (For a future baby, use your own).
Collegebacker has a simple, robo-advisor approach which simplifies the sign up process to make it comfortable for all users. “We ask a couple of questions and then recommend an age based investment fund based on their risk preference”.
Upon selecting an Investment Choice, you then complete, with their assistance if needed, any documentation that the Investment Choice requires. Collegebacker currently advises on approximately $2.25 million in client assets*
Users then go through a verification step, and then after approval can immediately fund the account. You’ll also get a custom landing page for each child you sign up so you can invite others to contribute. There is no limit on the number of people that can contribute into an account.
“Our families are saving 43% more on average because of the ease of gifting. This is a feature of our service that is especially important to cash-strapped millennial families, many of whom have college debt of their own”Collegebacker
Collegebacker $25 match
When you sign up and activate the 529 Plan, $25 will show as “pending” in the account. After making a deposit of at least $25, that money will be released and added to the child’s college fund.
You know how people say “what goes up must come down”. Well, when it comes to paying for a college education you can pretty much expect for the cost to continue going up and never come down. Some people start saving as soon as they get the news of a baby on the way, and some people start much later. However, as I found out, Collegebacker makes it easier to save for college. Its never too early or too late to start saving for the road to college.
Hope this helps make it easier to start saving for college. Happy savings, TaLis
*(as of the date of the Brochure on Collegebacker website)