Saving Freak

Back in October I did a four part series on saving for college.   In that series I talked about getting free money for college using the service BabyMint.  At that time BabyMint had parted ways with the credit card company that issued its credit cards.  Now they have their credit card back up and running and this makes their service amazing.  This is how it works:

Any purchase you make with the credit card gets you 1% of your purchase back in the form of BabyMint bucks (1 BabyMint buck = $1 value).  This money can then be put into a college savings plan or can be applied toward student loan debt.  This is only the tip of the iceberg for BabyMint.  They have also partnered with hundreds of merchants to bring you even more savings when you shop online.  For example, I need to get a ladder and the hardware store down the street is one of the BabyMint partners.  This store gives 5% back when shop at their online store and you can pick it up from your local retailer.  So, I go to their site, but my ladder, and use the BabyMint credit card earning me an extra 1%.  This means I got 6% back toward my children’s college or my student loans (fortunately I have no loans so I would be saving for college).  The percentage varies by retailer but it goes as high as 26% of your purchase price.  There are no strings attached and since I am a member anyone I refer gets 5 BabMint bucks so you can sign up here(for disclosure I will also get 5 BabyMint bucks for anyone whom I refer and earns 25 BabyMint bucks).  The sooner you start saving for college the easier it will be to pay that money out.  Check out my 529 Guide for better info on which plans to choose.

In the past two days I have covered good places to put your savings for higher education. Now, in the typical saving freak way, I am going to unveil FREE MONEY FOR COLLEGE!!

There are two programs out there that will give you free money just for shopping at vendors that you buy stuff from anyway. The first is Baby Mint and the second is UPromise. Here’s how it works, both of these programs have partnered with various merchants, most of them big name retailers, to give you cash back into your college savings plans. All you do is shop at the stores you normally would and receive free money for your college savings. There are some slight differences so here we go:

Baby Mint– You go online to their website and register for the program. Right now you can only purchase items online and receive credit. This is because the provider for the Baby Mint College Savings Credit Card backed out of their deal rather unexpectedly. So Baby Mint is searching for another company to work with. As soon as the program is back up you will be able to use their credit card at any merchant in their network and receive free money back into you account. The biggest advantage to Baby Mint is you can put the money into a 529 or use it to PAY OFF YOUR STUDENT LOAN!! That’s right Baby Mint is good for everyone even if you do not have kids. How awesome is that!!

UPromise–Same type of initial registration as Baby Mint except that you register your current credit or debit card with UPromise and they track your shopping using that card. The rebates tend to be a little lower that Baby Mint and they will only let you deposit your money in specific 529 plans. So you will want to measure the plans available with the 529 guide. The key to this is, once Baby Mint gets their credit card back up and running, register that card with UPromise and get double rewards.

Both of these programs will allow friends and family to also contribute to your college savings by registering their cards (UPromise) or setting up an account of their own and transferring the earnings (Baby Mint). Either way this is a great way to get the grandparents help out with college savings.

I hope that this series was informative and that if you enjoyed it you will consider subscribing to my blog via e-mail or in a reader

Yesterday we talked about the 529 plan. The second savings vehicle for higher education is called the Coverdell Education Savings Accout (or ESA for short). The ESA can be an effective way to save for college. Just like the 529 it is post tax money and the interest it earns is tax deferred. There are some downsides compared to a 529. First, you can only put $2,000 dollars into it each year. So if you started late on saving for college it restricts you a little. Second, it can cause problems with certain deductions and tax credits. And third, the money in an ESA actually belongs to the student not the custodian of the account (usually the parents). The biggest advantage of the ESA is that is can be used to pay for primary and secondary schools. So if you want to send your kids to private school you can use the account for those expenses. Also your state determines how much you can have in a 529. So if you need more than that, say for a child that wants to be a doctor, you can use the ESA as an alternate means to save. You will need to make sure the fees for the ESA are not to high. The best place I have found for info is SavingForCollege.com. You can access their list of preferred ESA providers here.

In the final segment of this series I will show you how to get free money for college. It won’t pay for everything but it will certainly help.

Since saving for college should take more than five years we need to consider it a long term investment. Just like saving for retirement there are types of accounts that have tax advantages. The most widely used plan is called a 529 plan.

All 529 plans are sponsored by a state. Meaning there are 50 different 529’s (I have a quick guide here). You can put your money in whichever state plan you want and can spend that money at whatever college you would like to. The money going in is post-tax (meaning you have already paid taxes on it) and grows tax free (meaning you do not have to pay any taxes on the interest) if you you use it for college expenses, such as tuition, fees, books, supplies, and room and board. Basically the 529 is the college savings equivalent of a Roth IRA.  Many states offer tax deductions on state income taxes for residents if you contribute to their plan.  If you live in one of these states you will want to contribute to your state’s plan.  If your state is not listed here you will want to choose a different state.  Any state not listed on this list either has high annual fees or requires you to purchase the plan through an intermediary that will charge you a commission.

There are a few other rules you have to follow with these plans. The first is that they are associated with a single beneficiary. So if you have kids that will be in college at the same time they will each need an individual 529 plan. You can, however, transfer the plan from one beneficiary to another. Therefore if you have two children that are more than 5 years apart (the average student graduates in five years now) you can transfer the account to the younger child before they go to college. Now everyone thinks their child is a genius and, some of them, are smart enough to get scholarships. If this were to happen you can transfer that money to a sibling or relative or it can be withdrawn. If the money is withdrawn for non-higher education expenses then you will have to pay the taxes on the interest earned and a 10% penalty. I was just in a financial class where a young lady, whose parents used a 529, had done just that. She used the money to put a down payment on her house. What a great set of parents!

The only other thing you need to remember is to use the mutual fund investments available in these plans.  You don’t want to be investing in bonds or money market accounts.  These are long term investments and should be treated as such.  Do your home work but invest in mutual funds.

In part three of this series I will be discussing the other tax advantaged type of college savings account.  See you there!

Being the youngest child by eight years has its perks. You get to watch everybody else go through life and learn from their mistakes. Through multiple sources the message has come in loud and clear that understanding how to save for your children’s education is important. In this four part series I am going to cover my journey in understanding the options that are available to us all. I hope this helps a lot of people since for some reason we keep producing these little mongrels and feel some obligation to prepare them for adulthood.

The first rule of saving for anything is to start NOW!! College is coming and kids grow up fast. I have a niece who will be turning 16 in January. The time has gone by so fast and it is hard to believe that little girl is only four years younger than her mother was when she got married (if any of you felt a wince, it came from my brother).

So now that you have separated some money in your budget for college savings where should we put it? Tomorrow we will look at one of the best choices for making that college money grow.

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