CollegeBacker Review 2020: The Simple Way to Save For College Using a 529 Plan

Updated Feb 28, 2020 | Chris Petrie

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CollegeBacker is an investment platform allowing you to save for college with tax advantages through a 529 plan. Collegebacker has simplified the college savings process while also making it easy for friends and family to make deposits into your child’s college savings.

Their mission is to make college affordable for every American family and to make it easy to start saving for college.

If you are ready to open an account with CollegeBacker today, you can get a $25 bonus when you fund fund your 529 plan through my link here.

CollegeBacker Review 2020: The Simple Way to Save for College Using 529 Plans
Overall
4.7
  • Fees
  • Sign Up Bonus
  • Customer Support
  • Investment Options
  • Features

Summary

Overall summary of CollegBacker.

Pros

  • Promotion: $25 per funded account
  • Minimum investment: $5
  • Can open a 529 plan in minutes
  • Family and friends can easily make contributions
  • Tax advantages
  • Ability to send gifts to other students

Cons

  • Processing fees for debit and credit card transactions
  • Customer service via email or chat only

What is CollegeBacker?

CollegeBacker is a robo-advisor specifically focused on 529 college savings plans. The company was founded in 2016 by current CEO Jordan Lee and is based out of San Francisco.

What Does CollegeBacker Offer?

collegebacker reviewJust like other 529 investment platforms, CollegeBacker is an investment platform which gives investors access to a diverse selection of 529 college savings plans. However, the thing that separates CollegeBacker from other investment platforms is they solely focus on college savings plans. In addition, they also have added the ability for multiple contributors to invest in a single 529 plan.

Why does this matter?

Allowing family and friends to invest into your college savings plan via a single shared link will help you save for your child’s college savings. Now friends and/or family members can click a link and make one-time or recurring investments on your child’s behalf. And to make it as simple as possible, CollegeBacker allows anyone to invest via a credit card, debit card, or bank transfer.

What are the Benefits of CollegeBacker?

What makes CollegeBacker stand out is:

  • Simplified investing for 529 plans
  • Access to a diverse range of 529 plans
  • Recommendations based on low-cost funds
  • Tax savings on college savings
  • Risk analysis based on age of child
  • Simplified process for having friends or family save

In addition to the college savings for your child, CollegeBacker also makes it easy to send a 529 savings gift to anyone – even if they don’t currently have a 529 plan. The next time your child is invited to a birthday party, you can actually send a 529 contribution in lieu of a traditional gift.

Who Can Join CollegeBacker?

Any family member at least 18 years old can open an account for a child or future college student. This member also does not need to be a parent or legal guardian. However, since the person opening the account can withdraw funds, it’s a good idea if they are the child’s primary caretaker.

CollegeBacker doesn’t require you to attend a specific college, earn a certain income or live in a qualifying state.

Children of any age can have a CollegeBacker account. For each child you add, CollegeBacker will gauge your risk tolerance and recommend a state-specific 529 plan.

Note: You can live in one state and invest into a different state’s 529 plan, and the student can go to any college of their choice.

Can I Open an Account for a Future Child?

Yes, you can create an account for a future child when you have a due date.

Once the baby is born, you can edit their plan details. If you have enough diapers, wipes and baby clothing, your friends can shower you with 529 contributions instead.

The idea here is to get the ball rolling on college savings as soon as your child is born.

How Do I Open an Account

You can open an account for free here.

Opening an account only takes a few minutes. When enrolling, CollegeBacker recommends a 529 college savings plan with the best plan fees and tax treatment for your state of residence. Avoiding these hidden costs means your child can have more money to pay for school.

Listen here: You can hear more about CollegeBacker from one of their advisor’s Abby Chao on Money Peach Podcast Episode 67.

Who Can Contribute to a CollegeBacker 529 Plan?

Any family member or friend can contribute to a child’s plan. The 529 plan provider (not CollegeBacker) invests the cash in stocks, bonds and fixed-income assets. When your child needs to pay for college, the funds can be withdrawn tax-free for eligible education costs.

Note: CollegeBacker is an investment platform only – meaning they do not hold your money but rather act as the interface between the investor and the 529 plan.

What are the CollegeBacker Fees

CollegeBacker is free to join, however, the 529 plan administrator (not CollegeBacker) collects an annual fee. The fee amount depends on which state plan you choose and the fund expense ratios.

For example, the fees for a Utah my529 can be between 0.174% and 0.187%. For every $1,000, you pay $1.87 with a 0.187% fee.

A third-party payment processor also charges 3% for credit and debit transactions to make a contribution. All bank account ACH transfers are free.

Does CollegeBacker Have Other Savings Plans?

No, just 529 college savings plans.

There are several different tax-advantaged college savings plans you can open for your child. Perhaps you know of 529 plans, Coverdell accounts and even prepaid tuition plans.

However, CollegeBacker only recommends 529 college savings plans. The primary reason for choosing a 529 plan is for their flexibility. This plan type is easy to qualify for, has high annual contribution limits and all withdrawals are tax-free for qualified education expenses like tuition, room and board, books and computers.

How 529 Plans Work

529 plans can seem confusing at first glance. If you use a Roth IRA to save for retirement, the college savings equivalent is a 529 plan.

One reason for the complexity is that most states offer their own 529 plan. Yet each plan can have different costs and investment options. You can join any state’s 529 plan even if your child won’t attend college there.

CollegeBacker can recommend your home state’s 529 plan or a different state’s 529 plan. For example, you might live in Tennessee but you might join Utah’s my529 plan because of their low plan fees.

But your home state might be CollegeBacker’s recommendation for you. This can be the case when your state lets you deduct 529 contributions on your state income tax return.

Because they are a fiduciary financial advisory, CollegeBacker does not accept commissions for recommending a certain 529 plan. CollegeBacker does accept cash donations from CollegeBacker to cover its operating expenses.

CollegeBacker’s Investment Strategy

CollegeBacker doesn’t manage the investment portfolio. Each state 529 has its own investment team. For example, Utah’s my529 uses Vanguard.

Typically, 529 plans invest the plan funds into a stock and bond index funds. These funds have low fund expenses to keep your investment fees low. Fewer fees mean more of your contributions can earn passive income.

The plan administrator will invest more aggressively while your child is young. The Utah my529 plan, for instance, invests in stock and bond funds managed by Vanguard.

As your child approaches college age, the plan shifts to a more risk-averse allocation to preserve the fund balance. Before enrolling in a specific 529 plan, you can see the investment glide path. This plan lets you see the planned asset allocation based on your child’s age.

Because you can invest the contributions in the stock market, you can earn potentially higher returns than relying on a bank CD. Like any investment, 529 contributions do contain some risk and all investors should be aware your investment does not always increase in value over time.

Tax Benefits of CollegeBacker 529 Plan

One of the reasons so many people use 529 plans to save and pay for college is the tax advantages. Similar to a ROTH IRA, the money you invest into a 529 will grow tax-free – meaning you don’t pay capital gains tax.

Then when it comes time to withdraw the funds to use for qualified educational expenses, you won’t pay any tax either.

Your 529 plan contributions do not qualify as a federal tax deduction but they may qualify for your state tax deduction. Each state is a little different on their tax savings for 529 plans, and it’s important to know how each state’s rules on deductions.

How Can I Make Contributions

It’s easy to contribute to any CollegeBacker 529 plan. CollegeBacker only requires each contribution to be at least $5.

The family member opening the account can link a bank account or pay with credit and debit cards. Bank transfers can take several days to complete but you don’t pay a processing fee.

You can add other family members to help manage the account. However, CollegeBacker only allows the person opening the 529 plan to make withdrawals. Your friends and family don’t need to be a plan manager to make contributions.

The easiest way to invite others to contribute is by sharing your child’s personal link. Grandparents, family and friends can click the link and make one-time or recurring contributions.

As friends contribute, CollegeBacker includes their name as a backer on your child’s account page like a crowdfunding platform. Other visitors won’t see another’s person’s contribution amount but will see that someone did participate into the 529 plan.

The plan owner (whoever opens the 529) does have 90 days to accept a friend’s contribution. If they don’t, CollegeBacker refunds the gift amount.

Using CollegeBacker

You can access CollegeBacker online using a laptop or mobile device browser. A mobile app is available for Apple devices as well. An Android app is in development as of February 12, 2020.

The CollegeBacker platform is easy to navigate. The claim is true that you can open an account within five minutes. You start the enrollment process on CollegeBacker. After choosing a state’s 529 plan, you activate your account on the plan provider’s website.

Once you activate the 529 plan, everything else you do is within the CollegeBacker website. You can schedule contributions from your account. When you have multiple child accounts, first decide which account you want to fund.

Inside your account, you can schedule recurring contributions. It’s also possible to invite others to make a contribution.

A third really nice feature is the ability to send gifts to other families even if they currently don’t have a CollegeBacker account. This is a great way to nudge someone in the right direction for starting up a savings plan for their child’s future education expenses.

CollegeBacker Savings Calculator

Anticipating how much your child’s 529 plan may be worth when they enter college can be a tough guess.

However, you can use CollegeBacker’s savings calculator to estimate the fund balance when the child turns 18. The calculator has you enter your monthly contribution plus the gifts from your family and friends.

Then, CollegeBacker also displays the projected returns if you were to invest your same gift into a taxable investment account or a savings account. They do this as a way for you to visualize why 529 plans are a much better tool than anything else when it comes to college savings.

Customer Support

While CollegeBacker is easy to navigate and their FAQs cover most questions, you may still need additional help.

You can email CollegeBacker at any time and live chat is available from 9 am to 5 pm Pacific Standard Time.

Their support team can answer your general questions about using CollegeBacker, however, CollegeBacker doesn’t provide personal investing advice.

Is CollegeBacker Safe?

CollegeBacker uses bank-level security to protect your personal data. The 529 plan provider you choose stores your investment account information. It’s likely that their security protocol is on par with CollegeBacker.

Is CollegeBacker Reputable?

I had someone from CollegeBacker come on The Money Peach Podcast in 2017 just a year after they got started….imagine me puffing my chest out right now as I say this.

However, since then they have grown and have been featured in Yahoo Finance, People Magazine, The New York Times, Forbes and The Wall Street Journal.

What Happens if CollegeBacker Goes Out of Business?

Your child’s college savings are not stored in CollegeBacker’s vault. If CollegeBacker were to close, the account balance is with the plan provider.

Theoretically, you can access your child’s account directly from the state’s 529 plan website. This is the same website you visit to activate the 529 plan to start making contributions.

Who Should Join CollegeBacker?

CollegeBacker is a good fit for those who want a hassle-free way to open a 529 account with low expenses and potential state tax benefits. Any 529 plan can offset college costs with tax-free funds. But CollegeBacker helps you quickly find the best 529 plan for your family.

You may also appreciate how easy CollegeBacker makes it for friends and family to send a gift.

Young children can benefit the most from a CollegeBacker 529 plan. This is because they can have their entire childhood to earn passive income. Even if your child has already started attending grade school, it may not be too late to start.

What I Like About CollegeBacker

  • It’s free to use
  • Minimum $5 investment
  • Can open a 529 plan in minutes
  • Family and friends can easily make contributions
  • Tax advantages
  • Ability to send gifts to other students

What I Dislike About CollegeBacker

  • Processing fees for debit and credit card transactions
  • Customer service via email or chat only

My Recommendation

You can open a 529 plan anywhere — at any brokerage account or with any financial advisor. However, none of them will have the perks that CollegeBacker has.

By perks, I am talking about the ability to make it extremely easy for family and friends to contribute to your child’s 529 plan. Or the ability to send a gift to another friend or family member in the form a 529 savings account for their child.

You also won’t have the dashboard and the user-friendliness of CollegeBacker. If you have a current investment account at a brokerage, you know what I am talking about — it was built for people who simply just want to invest.

If you currently don’t have a 529 account, I would highly encourage you to simply get started. You can open an account for free and all it takes is $5 to fund your account. The best time to start saving for college was yesterday. The second best time is right now.

Chris Peach Author 150x150

Chris Petrie

Chris (Peach) Petrie is a personal finance expert, money coach, speaker and podcaster.

In 2011, Chris and his family were exhausted from living paycheck-to-paycheck and facing a mountain of debt. They started going against the society standards of misbehaving with money and made the decision to take back control of their lives and money. Within seven months they paid off $52,000, started saving like crazy and began building real wealth.

The word spread fast and Chris started showing friends how to create a budget over dinner. Soon after he started showing their friends how to do the same and eventually Chris started teaching personal finance classes around the community. As the need for the classes grew, Chris launched Money Peach in 2015.

Money Peach was created to help everyday people remove the stress and fear of money by showing them how to save more, make more, and keep more of their money.

Chris Peach has been featured in places like Business Insider, The Huffington Post, Elite Daily, and CheddarTV.

When Chris isn’t at “work” he can be found at the Crossfit gym or riding on the fire truck — Chris is also a full-time firefighter in Phoenix, Arizona.

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