 Choosing
a college fund rewards card
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 Dear
College Money Guru,
Which credit cards contribute to a 529 plan?
Thank you.
-- Craig
 Dear
Craig,
Among the proliferation of "rewards" credit cards, you'll
find a few that are tied to 529 plans. For families with children,
these appear at first blush to be no-brainer deals: Use a 529 rewards
card instead of cash to pay for all your purchases, then just sit
back and wait for the rebates to drop automatically into your 529
college-savings account.
Of course, this strategy works best if you pay off
the entire balance on your statement each month. Otherwise, the
interest you pay is likely to exceed the amount of rebates earned.
You should also consider which particular card is going to produce
the highest reward. (If you're planning to purchase a General Motors
Corp. vehicle, perhaps you should make the GM 5-percent rewards
card the first piece of plastic you pull out of your wallet or purse,
and not your 529 rewards card.)
Some of the 529 rewards cards are linked to specific
529 plans while others allow you to designate just about any 529
plan, or other type of investment account, to receive your rebates.
With all of them, you can request that the balance in your rebate
account be sent directly to you instead of to your investment account,
but there might be a time delay and additional requirements, such
as a signature guaranty, before you get your money.
Here are the most popular 529 rewards cards, none
of which charge an annual fee:
The Fidelity 529 College Rewards Card from MBNA earns
a generous 2-percent rebate on your purchases, with a maximum annual
rebate of $1,500. Suppose you have a child attending a private college
charging $20,000 in tuition. Using the card to pay this year's tuition
will get you $400 toward next year's bill. You can set it up so
that the rebates from this card are automatically deposited into
any of the Fidelity-managed 529 plans. Fidelity
has programs in Arizona, Delaware, Massachusetts and New Hampshire.
The Citi Upromise Card offers a 1-percent rebate on
general purchases, with an annual rebate cap of $300. When used
at certain retail locations, however, the rebate is boosted to 2
percent (Exxon or Mobil stations) or 10 percent (grocery and drug
stores) with no annual caps. The card can be linked to any of the
529 plans managed by Upromise
Investments Inc. (New York's college savings program being the
largest).
The GHESP/Futuretrust MasterCard from Juniper Bank
is linked to Georgia's
Higher Education Savings Plan, managed by TIAA-CREF. It offers
a 1-percent rebate on general purchases and no annual cap. If you
don't want to use the Georgia 529 plan, you might consider Futuretrust's
self-branded rewards card. It has the same terms and can be linked
to most investment or bank account, including 529 plans.
Finally, there's the BabyMint
College Savings Credit Card from MBNA, offering a 1-percent rebate
and no annual cap. Like the Futuretrust card, you can set up your
rebate account to have the dollars swept into the 529 plan or other
investment account of your choice.
It's easy to confuse the 529 rewards credit cards
with the various 529 rewards purchase programs. Upromise, Futuretrust
and BabyMint all operate purchase rebate programs that do not require
the use of their branded credit cards, although paying for your
purchase with the credit card might produce bonus rebates. Another
529 rewards service, but one that currently does not offer a credit
card, comes from Little
Grad.
In any of these purchase rewards programs, you simply
make your online or offline purchase through the program-affiliated
merchant network, and you earn a rebate for that purchase. (Upromise
and Little Grad make available a software download that captures
rebates from your online purchases even when you do not first log
onto their sites.) The amount of rebate will vary among the participating
retailers. It pays to compare the rewards services when making major
purchases, because the same item could earn different rebates depending
on the particular reward service.
Rebates deposited into your 529 plan are treated the
same as direct-cash contributions, and you have to count them for
gift-tax purposes. For most families that should not be a problem,
since the $12,000 annual exclusion will be sufficient to cover the
additional gifts. Having added over $2,000 to our own 529 accounts
over the past few years with rebates on items we normally buy, I
can personally attest to the benefits of 529 rewards programs.
To ask a question of the College
Money Guru, go to the "Ask
the Experts" page, and select "College financing"
as the topic.
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