CollegeBacker Review: How to Start a 529 Plan in 5 Minutes
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While the road to college is paved with good intentions, many students rack up tens of thousands in student loan debt because they aren’t prepared. Being proactive can help you stay on course.
A 529 plan is a great way to begin saving for college right now. These programs allow for tax-free contributions and distributions from an investment account for your child’s education or to benefit your own learning pursuits.
CollegeBacker makes it easy to get started. If you have five minutes to spare, you can set up a free account today.
In this review of the CollegeBacker 529 College Savings Plan, we’ll answer these questions:
- What is CollegeBacker?
- Why choose CollegeBacker?
- How much does it cost?
- How do I get started?
- What are the pros and cons of CollegeBacker?
- Why should I choose CollegeBacker?
Once you understand how CollegeBacker works, you’ll know if it’s right for your family.
CollegeBacker at a Glance
Named after Section 529 of the Internal Revenue Code (IRC), a 529 plan is one of the best ways parents can save money for their children’s college education. You can also use up to $10,000 of a 529 plan per beneficiary every year to pay for primary and secondary school tuition, thanks to the 2017 Tax Cuts and Jobs Act.
With a CollegeBacker 529 plan, you can:
- Set up a free account in minutes
- Contribute post-tax money for qualified education expenses
- Explore low-cost investment options to grow your money tax-free
- Withdraw timely tax-free funds to pay for approved expenses
- Access your account securely with bank-level encryption
- Securely request support from family and friends
Any school eligible for U.S. financial aid (which includes some foreign schools) will accept funds from a CollegeBacker 529 College Savings Plan.
What Is CollegeBacker?
CollegeBacker is an online option for starting and maintaining a federally recognized 529 savings plan. It’s operated and maintained by Principly, Inc., a U.S. Securities and Exchange Commission-registered investment adviser.
Think of CollegeBacker as a robo-ally that provides autonomy over the assets you’ve set aside. It’s like a Roth IRA for education. Give your children the gift of going to the university of their choice while sheltering them from future student loan debt. Win-win.
The company was launched in 2016 by current CEO Jordan Lee, an entrepreneur and self-proclaimed personal finance geek who sought to simplify access to 529 plans to lessen the burden of college debt for future generations.
Through his company, you can automate the contribution, management, and withdrawal of funds for approved college expenses. CollegeBacker’s mission is to make college affordable for every family in America. To that end, the platform has helped families thwart more than $9 million in student loan debt.
Why Choose CollegeBacker?
Easy to Start, Share, and Use: CollegeBacker simplifies the process of setting up a 529 plan. By taking a lot of the guesswork out of the process, parents can focus more on saving money than adhering to plan rules, balancing investment portfolios, or stressing about whether investment commissions and fees are eating away at their bottom line.
Flexible Fund Use: Use funds for primary and secondary education tuition, as well as undergraduate and graduate school tuition and expenses. There is no age limit on fund use. If your child decides to go back to school at the age of 30, he or she can still use the financial benefits of a 529 plan.
No Distribution Limits for College: You can use any amount in a year for college. The $10,000 per year cap only applies to funds used for elementary, middle, and high school tuition.
How Much Does CollegeBacker Cost?
It’s free to create an account. There are no mandatory account fees, but you will choose a fair monthly amount to tip CollegeBacker. One percent of your tip goes to aid low-income families in educational pursuits.
There are fees for the investments you select, but CollegeBacker doesn’t take commissions and purposely chooses low-cost investment options to minimize those fees and give you access to more of your money.
How to Get Started With CollegeBacker
Go to CollegeBacker’s website and set up a free account. You’ll be able to set up automatic contributions, choose investment options, and have access to a gifting page that you can share with unlimited people through a unique weblink. It takes a village to raise a child, right? With CollegeBacker, your village can help send your child to college.
And here’s the kicker: You don’t have to be the parent of the child to jumpstart the process. If you are at least 18 years old and a U.S. resident or resident alien, you are eligible to open an account on behalf of a child. There are no age or income restrictions for contributors.
To reap the most rewards, start saving for college early. Small, regular amounts over a few decades can compound into an impressive nest egg. According to CollegeBacker, 20% of its users start their tax-free 529 savings plan before the birth of their child.
The strength of this resource is passive investing using low-fee index funds held over time. The portfolio automatically adjusts based on the age of the child, starting out more aggressive in the early years and leveling out to reduce risk as your child reaches college age.
Pros and Cons of CollegeBacker
CollegeBacker is a safe and simple way to save and grow money for your children’s education, but like anything in life, CollegeBacker has some drawbacks. First, let’s start with everything we love about this 529 plan.
What We Love About CollegeBacker
The Circle-Fund Slider: CollegeBacker’s built-in 529 plan calculator helps you get an idea of the financial impact of your circle (“backers”) on your child’s education. Enter your information to see how crowdfunding makes a difference.
Ease of Access: You can set up a free account in minutes from your phone, tablet, or laptop.
Perfect for Investing Newbies: You don’t need to have expert knowledge of stocks, bonds, or index funds. The automated system collects your data and recommends best-fit, low-cost investment options to fit your goals.
Social Aspect: People love to come together for a common goal. The concept of crowdfunding for college is brilliant.
Super Fast Help: I used the chat feature and got a response in less than an hour. Plus, there’s an email option. The CollegeBacker team is available from 9 a.m. to 5 p.m. Monday through Friday. There is also a handy brochure online with helpful insights.
No Mandatory Account Fees: You aren’t required to pay account management fees, but you can tip CollegeBacker on what you think is fair. The company uses 1% of the tips to help low-income families.
Tax-Free: Contribute your post-tax money, enjoy tax-free growth (no capital gains tax), and withdraw without tax penalties (unless you take money out for non-covered expenses).
Ability to Transfer Your Plan: You can move your account to a different 529 plan by contacting the CollegeBacker team.
Where CollegeBacker Falls Short
No App: In an age when there’s an app for almost everything, it would be nice to see a secure app for easy access, link sharing, and account monitoring. Just think how sweet it would be to get a contribution notification from your circle pop up!
Single Beneficiary Limitation: While parents can change the beneficiary on any account, even after making withdrawals, each child must have his or her own account. It would be convenient if you could add multiple children to one account.
Limited Fund Selection: Your investment options are limited to the funds CollegeBacker provides. In some cases, your state-sponsored plan may have more options.
No State Deductions: Your state-sponsored 529 plan may have generous tax deductions or credits for plan contributions. You’ll miss out on those with CollegeBacker.
No Tax or Financial Planning Advice: If you have complex questions about investment strategies, risks, or the tax implications of your yearly contributions, you must consult a lawyer or tax professional separately.
Who Should Use CollegeBacker?
You’re a great candidate if:
- You plan to or already have children
- The idea of starting a 529 plan to help pay for education is appealing
- You’re having difficulty starting a state-administered 529 plan
- You’re new to investing
- You aren’t shy about sharing links with family and friends
If you’d like to explore your state-sponsored plan options, the College Savings Plan Network is a good place to start. It’s connected to the National Association of State Treasurers, an advocacy group dedicated to providing access to sound financial policies and programs.
The Bottom Line
CollegeBacker is not the only option when it comes to saving for your child’s education. Options like savings bonds, Coverdell Education Savings Accounts (ESA), and UGMA/UTMA (Uniform Gift to Minors Act and Uniform Transfer to Minors Act) accounts all exist to help decrease financial burdens on students and their families.
Still, CollegeBacker is one of the easiest options out there. It just takes a bit of spare time and a few clicks.
Have you started saving for your kids’ college expenses yet? What’s your biggest hurdle? Share with us in the comments!
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I don’t know that it’s fair to have single beneficiary limitation as a con for this company. That’s the case with any 529 plan.