Backer review: Save for college with family and friends

How does Backer work?

Backer is a service designed for families preparing to save for their children’s college education. It helps connect parents with eligible 529 college savings plans based on their location and savings goals.
But connecting parents with 529 plans is only half of the equation. Because Backer takes things a step further with its crowdfunding feature. Once you open an account, Backer helps you create a gifting page for your child’s college account. This page is designed to be shared with friends and family to make it easy for them to set up standalone or ongoing contributions. There’s no limit to the number of people who can contribute, and you’re free to use funds to pay for college expenses of more than one child.
Fees for Backer start at $1 monthly and contributions can be made by bank transfer, debit card or credit card.

What are the benefits of a 529 savings plan with Backer?

Backer doesn’t offer its own 529 plans. Instead, it matches investors with plans from third-party providers that best match their investment goals. Here are a handful of benefits to using Backer to consider:

• High rate of return. Based on the historical performance of the S&P 500, Backer predicts an 8% rate of return against 5% inflation. $100 invested before a child’s first birthday could grow to as much as $500 by the time they turn 18.
• Low fees. Fees for Backer start at $1 monthly, but you have the option to pay up to $10 per month. And 10% of your monthly contribution will go toward helping low-income families prepare for college.
• No contribution limits. Besides the $15,000 federal gift tax exclusion limit, there’s no cap to how much you can contribute each year.
• No minimum balance. You can start saving for college with as much or as little as you want.
• Options and flexibility. Backer offers a highly rated 529 or age-adjusting investment option. But if you don’t like the options in your state, you can open a 529 from another state, even if you don’t live there.
• Earn cashback rewards. When you shop at Backer’s name-brand partners, you’ll earn cash back to contribute to your child’s 529 plan.

What should I look out for?

While it has lots of perks to boast of, Backer isn’t perfect. Here are a few drawbacks to keep in mind before signing up:

• Withdrawal penalty. If you make a withdrawal and spend the funds on anything other than qualified post-secondary expenses, you’ll pay a 10% tax on the investment earnings.
• No guaranteed return. Unlike savings accounts, CDs and money market accounts, 529s don’t have guaranteed returns.
• Management fees. Though Backer doesn’t charge any management fees, the institutions overseeing the funds they select do.
• No branches. Backer operates entirely online, so you won’t be able to visit a branch if you need assistance.
• Credit and debit fees. There’s a 2.9% plus $2.95 fee when you or anyone else makes a contribution by credit or debit card.
• No mobile app. While the Backer website is optimized for mobile browsers, it doesn’t offer a mobile app to help you manage your account on the go.

Are contributions to Backer 529 accounts tax deductible?

You could claim state income tax deductions or credits if you’re the owner of the account, but it depends on your state of residence:

• AZ, KS, MN, MO, MT, PA and UT allow you to claim certain state tax benefits for contributions made into any 529 plan.
• AB, AK, CO, CT, GA, ID, IL, IA, LA, ME, MD, MA, MI, MS, NE, NH, NM, NY, ND, OH, OK, OR, RI, SC, VT, VA, WV and WI only provide state tax benefits for contributions made into their state plans.
• AK, CA, DE, FL, HI, KY, NV, NJ, NC, SD, TN, TX, WA and WY do not provide any additional state tax benefits for contributions made into a 529 plan

However, any interest you earn from 529 plans is free of federal taxes and most state taxes when used for qualifying education expenses like tuition, books and room and board.

How do I open an account?

Backer makes it easy to open a 529 savings plan online:

1. Visit the Backer website and select Get Started.
2. Enter your full name, email address and create a password.
3. Create a plan by entering your child’s age and savings goals.
4. Enter your personal information and beneficiary details.
5. Review the 529 plan that Backer suggests and select Looks Good if you’d like to proceed.
6. Read through Backer’s Terms of Use and Advisory Agreement and select I agree.
7. Look over your application and make any necessary changes. Then, select Submit Application.

Once your application is finalized, invite friends and family to contribute.

What if I’m not ready to start investing?

You can always open up a Backer Safe account: an FDIC-insured starter account that allows you to contribute and collect monetary gifts from family and friends. You can upgrade from a Backer Safe account to a 529 account whenever you’re ready.

How can I get in touch with customer service?

To touch base with Backer’s customer support team, you’ll need to fill out a secure online form from its website. Enter your email address, name and describe your inquiry in the comment box. Expect a response within one to two business days.

Bottom line

Backer is a unique product that invites friends and family to contribute to your college savings account. It combines a top-tier 529 savings plan with convenient crowdfunding to help you reach your goals faster. However, returns aren’t guaranteed, and it doesn’t issue accounts directly, so if you’re looking for a more traditional approach, you may want to compare your options.

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