GradSave.com: Contribute to 529 Plan with Credit Card

LivingSocial is currently offering a $50 Gradsave gift card for $24 (expired). The GradSave College Savings Gift Card can be redeemed for a $50 deposit into any national 529 college savings plan. So if you’re already meaning to contribute some money towards a 529 plan, it’s basically $26 in free money. I bought one and requested it to be transferred it to my daughter’s existing Ohio CollegeAdvantage 529 plan. Limit 1 voucher per customer, beneficiary, account, savings plan, or 529 plan.

(Reminder, you can save a little extra on your LivingSocial deals with cashback shopping portals like eBates ($10 new customer bonus), Mr. Rebates ($5 bonus), and BigCrumbs.)

Additionally, GradSave.com is currently waiving all credit card processing fees on their gift cards as another start-up promotion. So, if you wanted to contribute say $1,000 towards your 529 plan, now you could earn cashback, points, or miles on your credit card for that amount (with no fees) instead of via check or bank account transfer. Also potentially handy towards spending hurdles on $500+ credit card bonuses.

A day later, credit card fees are no longer waived. The fees are rather high as well, even for bank transfers.

529 contributions can be taken out without penalty. If you withdraw any earnings for unqualified expenses, then you will be subject to income taxes as well as a 10% penalty. Still, it may be a lot of paperwork and/or headache unless you keep your records very clean and simple.

Comments

  1. Hi Jonathan,

    Can you please tell me how did you transfer the voucher to Ohio CollegeAdvantage 529 plan? Did you give Ohio a call..

    Would appreciate if you can let me know the process. I have 529 in Ohio College

    -JR

  2. @JR – I haven’t received the credits to my account (Utah), but you add the beneficiary then add the account number and the state that operates the program. According to GradSave, the transfer should take 10-14 days.

  3. Jonathan,

    I love your blog. I have been reading your blog for the past few months and I always find great advice.

    I have a few questions:
    1. How did you choose to go with the 529 that you choose? My child is almost 1 and I still haven’t started an account. I go cross eyed each time I see all the options available.

    2. Is there a link to the gradsave.com waiving fee’s start up promotion? I did not see it on their site.

    DW

  4. @Matt..thanks for your reply.

    Any chance do you know if beneficiary’s name should match between Gradsave and 529 plan. In my 529 plan, I have put my name as beneficiary and not updated child’s name in Gradsave should i be putting my name only as it would match…

  5. DW,

    Years ago this was the site for comparing plans. The one in our state sucked, was actually being taken to court for malfesance, so I had to go out of state: http://www.savingforcollege.com/

    I’d look into the vanguard funds as their expense ratios are as low as you can get. Some of the other fees other funds charge in these plans are crazy.

  6. Ok this is sort of devious but cant you pull money from a 529 plan without actually incurring any educational expenses?
    They mention a tax penalty but if you haven made any profit via the plan is there tax consequences for withdrawing money?
    If there isn’t any taxes on it, couldn’t you buy lets say $1000 GC get the 2% back from your credit card and make $20?
    Obviously you could do higher amounts like $10k or use it to meet CC sign up offers.
    Any one know if this would work?

  7. Jacob, as long as you don’t take a state tax deduction (assuming your state has one) and as long as you don’t have earnings, you could probably take an “unqualified” withdrawal and get away with it. I doubt your plan would let you make an immediate withdrawal as they usually make you keep your money in a minimum number of days. Personally, it would be too much work for me – not to mention it would be unethical.

  8. 26.99 fee for credit card. Seems like a fantastic way to fund a 529 with a credit card rewards like amex 2%.

  9. @Jonathan,

    How did you decide on a 529 plan vs using a Roth IRA? Is there a major advantage/disadvantage either way?

    Thanks,
    Ben

  10. I can’t find any option to avoid the 6% fee for using a credit card, where are you getting your information that this fee is waived?

  11. Give it a roll. I have a new born so I will use this to start her new account. Also the free credit card option is sweet. Drop a grand or two into her 529 and get points…sweet.

  12. I do see that there is a fee of $30 for buying the $500 gift card using a credit card on Gradave.com. How do you get it to waive as you mentioned in the blog?

    Did anyone else has success?

  13. Michael Bogle says:

    Question: Do you get your tax deduction for donating to a 529 by way of this site? It seems like you should, but I could see this turning into an audit risk when you don’t have a piece of paper showing a donation from me to the 529, rather, me to gradsave to the 529.

    Has anyone given any thought to this? Thanks!

  14. Michael Bogle says:

    @dw: This is the site most folks use:

    http://www.savingforcollege.com

    Here are their rankings:

    http://www.savingforcollege.com/5_cap_ratings/

    Pretty sure that if you get a state tax deduction/credit, unless your state is horrible, you should just go with that.

  15. Well, it appears GradSave pulled their no-fee offer overnight without any prior warning. Thanks for the updates, there used to be a sentence at the top of this page saying that there are no fees= “We are currently charging NO FEES. For details on how fees normally work with GradSave, read below.”

    http://www.gradsave.com/contribution-fee/

    The sentence is no longer there. They definitely appear to be a small operation that wasn’t ready for this much attention after the LivingSocial deal. They’ve been changing other terms of their website without notice as well. The LivingSocial deal itself is still available, though. I hope they process my contribution to Ohio 529 properly and in a timely manner.

    I forgot to add, the LivingSocial code may take a while to activate, so just wait overnight and it should work.

  16. Even though the no-fee credit card offer is gone, GradSav will still give you $100 if you meet a goal of saving $1,000 in 60 days. So buying 2 x $500 gift cards costs $60, but you get $100 back which is then deposited into the account.

  17. @colin – do you have a link for that? I think they pulled that offer without notice already as well

  18. Michael Bogle says:

    @Colin: Unless they pull that offer too.

    Maybe it’s just me, but I don’t have a whole lot of faith in these folks. Just seems like a stupid business idea to expect parents and relatives to pay fees to donate to a 529 when they could just write a check or donate directly to the 529 with no fee.

    We can always challenge the charge on our CC if the money doesn’t go through, I guess.

  19. Michael Bogle says:
  20. Michael Bogle says:

    @Jonathan: Front page, bottom right, under Latest News & Posts: “Holiday Parties on a Shoestring”

    Link is down the page.

  21. Michael Bogle says:

    FYI, I got this response back on the issue of taxes:

    Hello,

    I apologize, I cannot give tax advice, please consult your tax professional.

    If there’s anything else I can do, please don’t hesitate to contact me.

    Sorry I cant be more helpful on this.

    Eddie Pradel
    Community Manager
    eddie@gradsave.com
    305-417-8125

    Reasonable response, as I understand not wanting to give legal/tax advice out over the internet, but that’s a pretty big deal in many states (contributions are fully deductible in SC with no limit, so that’s 6% back in your pocket) – I’m kinda surprised they haven’t taken the time to get a formal legal opinion on that issue and put it on their webpage, with the normal disclaimers.

  22. @dw: Take a look here:

    http://www.savingforcollege.com/5_cap_ratings/

    Good website for evaluating your options. I think the general rule of thumb is that if your state offers a deduction, you’re better off going with that, unless the program has a lot of fees.

  23. Bummer on pulling the “no fee” offer. I was just about to jump on it since I’ve got some 529 contributions to make. Jonathan — are you aware of any other cost effective ways of using credit cards to get money into a 529? I would be willing to pay a 2% fee, since I have reward cards that will probably net me 4% back.

  24. @Smitty: There are easier and safer ways of meeting spending hurdles than going out on a limb with this type of start up, IMO.

    If a VISA or MC, here’s an easy way to spend $5k:

    http://www.fatwallet.com/forums/finance/1240871/

    Hard pull though…

  25. @Jonathan: When you create an account, you set a savings goal in one of the steps. The savings goal can be changed at any time. The goal page says, “Studies show that the key to long-term success in college savings is to start early. We’ll reward you with $100 towards your child’s GradSave account when you reach $1,000 in gifts in the next 60 days. So hurry!” Below this is a graph that shows how close you are to reaching your goal.

    @Michael Bogle: I am going to jump on this today to help meet a new credit card minimum spend threshold and take screenshots. Each of my kids will get $1,000. Not much faith either that they will be around very long.

  26. Well, I contributed $1,000 during the no fee offer period. Let’s see if I get my $100 as promised.

  27. @Jonathan: Here is the reply I got from GradSav re. no-fee offer and $100 bonus offer.

    “We had no fees for the holidays but they have been updated since. You can find the fee schedule here:
    http://www.gradsave.com/contribution-fee/

    The $1,000 Challenge expired last Friday and we thought we had pulled all creative, it seems the banner you saw on your profile was there by mistake.
    Because you did see the banner just now, my supervisor said we can go ahead and honor it for you.

    The $1,000 however must be reached withing 60 days from at least 10 gifters. Similar to our birthday party challenge: http://www.gradsave.com/savingsexpert/birthday.html

    Please keep this email as proof to qualify for the $100 if you reach the $1,000 goal and email me when you do so I can make sure we honor this for you.”

    The fact that the $1,000 must be contributed by at least 10 different gifters is a deal breaker. At least I got the LivingSocial deal.

  28. DOes anyone know if I can use 529 option for my own MBA program’s fee? It would save me some money if i can pay some of my (high) tution with money from 529 plan that i have for my kid. Thanks.

  29. Rn, Yes you can use a 529 for yourself. If you have a 529 setup you can change the beneficiary to yourself and then use that money to pay your own tuition bills. I’d check the plan rules to make sure about the details. You might also want to compare using the 529 to using out of pocket money. There are tax benefits for education that might work better such as the lifetime learning credit.

  30. I got notice of the Living Social Deal and am trying to figure out whether I can do it without a 529 or ‘college savings plan.’ My youngest is a college freshman…if I could get $26 free, that would be sweet. Can anyone tell whether the money can just be deposited in a regular checking or savings account?

  31. Hi Jonathan,
    Did you mean that we can withdraw our principal contribution from the 529 plan without any penalty (of course, subject to income tax), as long as we still leave the earnings in the account? That would be the same as Roth IRA, right?
    Thanks, Andy

  32. Did anyone get their deposit yet? I have a 529 account for my son and I bought this deal the day it was posted, and from the gradsave website transferred the $50 to his account. But it has yet to post there. Anyone else still waiting?

  33. $50 posted to account on January 28. Bought deal on January 15.

  34. Mine posted today 1/31 to CollegeAdvantage. $1,050 was split 50/50 into the two existing investment options in the fund.

  35. don’t trust these people they have taken over $500 of mine and refuse to credit it to my childs account

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