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Funding 529 Funds with a Credit Card

Discussion in 'Investments and Savings' started by FullMoonMadness, Jan 20, 2017.

  1. FullMoonMadness

    FullMoonMadness Level 2 Member

    I'm not sure if this really belongs in the MS forum, but I thought I'd start here.

    I'm looking for a way to earn points while funding a 529 account.
    • I've had no luck finding Gift of College GCs at my local Toys R Us stores, and the fee is not quite as nice online
    • I've tried Plastiq, but they cancelled the check, and a chat with them says they don't pay "trust and retirement" accounts
    • The plan I have for my child is the New York direct, but the name (New York's 529 College Savings Program Direct Plan) is literally too long to type in the payee section of all my banks to attempt a billpay -- even shortening to NY is still too long; I think there is a limit of 32 characters at my banks
    • I've sold some GCs to Gift of College in the past, but I'm not seeing any good deals where I'm not losing more money on the resale than the points are worth
    Does anyone know of another way to fund and earn miles? Has anyone tried using Walmart (or similar) to pay bills? -- I would imagine the 529 fund is probably not on their list. Does anyone know a little bit more about finding Gift of College GCs in the wild?

    Thanks in advance!
  2. Sean1234

    Sean1234 Level 2 Member

    If you're one of the lucky few who have an active Serve, you could convert to Bluebird, load it with VGC, and write a check with it to the 529. This article discusses IRA but I imagine it would be similar for a 529
  3. FullMoonMadness

    FullMoonMadness Level 2 Member

    I appreciate the suggestion, but my Serve was axed about a year ago. Thanks for the reply!
  4. BananaStash

    BananaStash Level 2 Member

    I read in the r/churning daily thread that edvest sells GoC GCs for the same price as TRUs. Haven't looked into it further.
  5. FullMoonMadness

    FullMoonMadness Level 2 Member

    Thanks for the tip. I didn't have any luck finding the thread, but I checked out the edvest site. I get the impression I can only redeem the gift card with edvest. I may do a test purchase at some point. Thanks again!
  6. MarkD

    MarkD Level 2 Member

    This method is very dependent upon if you have a grocery store that sells $500 MetaBank GCs...

    If you have an AMEX OBC and a GoBank card you can buy VGCs ($25 cash back per $500 assuming you meet the $6500 spend threshold), then load to GoBank at WalMart and pay the 529 plan from GoBank. Replace with a points earning grocery card is that is your preference over cash back.

    This is what I did before Safeway pulled the $500 cards. I've hear they are back now though - YMMV.
  7. PD634

    PD634 New Member

    Found this thread when googling Amex and Edvest. I've used Edvest's online gift cards to fund a 529. Doesn't matter what state you are in. The gift cards bought from Edvest are emailed to you and can be redeemed through GiftofCollege.com (where I had an account that was linked to my state-specific 529). Once "redeemed," at GiftofCollege.com, it took about 2 weeks for them to be processed and show up on my 529, but indeed they did!
  8. newaliases

    newaliases Just an alias

    As the reader above noted, the best way is Edvest (https://www.edvest.com/tools/gift/index2.shtml),.

    It costs $5.95 to buy a $500 gift card that will be e-mailed to you after a very short hold. That is an effective cost of 1.19%, so any credit card that earns over that results in a net gain to you. The gift card is electronic, which you can redeem instantly online on your gift of college account.

    The one warning is that it does take awhile for the account to hit the 529 plan.
  9. Cytraveler

    Cytraveler Level 2 Member

    Also, on Toys R Us, I thought I was out of luck too. Customer service up front said they'd never heard of it. Went back few weeks later, same thing, but she said I was welcome to search the aisles on the back too. Turns out, there was another gift card rack way in the back that had them at the bottom. So search them all carefully!

    First time I could buy $3k. Beautiful. But next time they said they were limited to $1k per day. Still, it's not far from my house, so easy way to meet $3k in spend for ~$36. It does take a couple weeks to post, but all of mine have.
  10. newaliases

    newaliases Just an alias

    Why do Toys R Us (unless you are in it for some category awards) if you can just order them online through Edvest? Edvest, as far as I know, is the same card (Gift of College) and I just bought $1,500 so don't think there are limits.
  11. Cytraveler

    Cytraveler Level 2 Member

    I didn't know about Edvest before; just tried it; looks good. Also, in the future, with the new US Bank Altitude allowing 3x points on mobile payments, and ToysRUs takes applepay I believe, so something to think about.
  12. newaliases

    newaliases Just an alias

    Not to make you feel bad but US Bank recently had charities as a 5x option and these purchases code as charitable purchases. US Bank not surprisingly within the last few months got rid of that category :(
  13. notalent

    notalent Michael Bolton

    How are you tracking the flow from $500GC->Serve->529 for tax purposes?
  14. BananaStash

    BananaStash Level 2 Member

    (IANAL or CPA or expert or etc.) My understanding is that your contributions are taxed as part of your income already. The fact that the contribution comes roundabout through VGC/Serve or other means doesn't affect your income or taxes.
  15. Matt

    Matt Administrator Staff Member

    You just need to remember that you did contribute. If you fund via Serve, and the Serve is closed it is harder to find out 'what you did with all that money' when it comes to filing.

    No reason you can't pull this up on just the custodian side, providing they don't make an error.
  16. FullMoonMadness

    FullMoonMadness Level 2 Member

    It looks like EdVest just lowered the maximum GC purchase from $500 to $300, with the same "convenience" fee (anyone else find fees convenient?).

    That's disappointing since I have yet to see a Gift of College physical gift card in person. I think I have to kill a Sasquatch and/or steal his wallet to actually get my hands on one.
  17. Cytraveler

    Cytraveler Level 2 Member

    hmm, that is disappointing. I guess it's back to ToysRUs for me - good luck FullMoonMadness. They do exist.
  18. VanillaSmack

    VanillaSmack Level 2 Member

    You can still buy up to $500 cards from Scholarshare (CA's 529). For now at least.
  19. El Ingeniero

    El Ingeniero Level 2 Member

    Some 529 providers allow non-qualified withdrawals. Which means this is a perfectly fine MS method.
  20. VanillaSmack

    VanillaSmack Level 2 Member

    Hmmm, that's interesting. I think actually all 529 providers allow non-qualified withdrawals (or at least that's the norm) but you have to pay a 10% federal penalty tax on the earnings portion of any non-qualified withdrawal.

    Is there any way to only withdraw contributions but not earnings? This says you can't - they will always be mixed together by default:
    Last edited: Jul 10, 2017
  21. El Ingeniero

    El Ingeniero Level 2 Member

    The definitive discussion of 529 funds:

    Utah does not allow non-qualified withdrawals, for one. I have my son's 529 there because MN does not give a tax break for 529 contributions, and they have by far the best choice of funds.

    Buy a $500 card at TRU, deposit it and take $500 out. Who's to say what is and isn't earnings?
    Last edited: Jul 10, 2017
  22. VanillaSmack

    VanillaSmack Level 2 Member

    My understanding is that if you deposit $500 to an existing account that has, say $6500 already deposited with another $3000 in investment returns on top of that, then when you withdraw the $500 the IRS looks at it as a withdrawal of 70% principal, and 30% earnings. So you would pay the 10% penalty (plus "normal" taxes) on 30% of the $500 so $15+.

    But, if you created a brand-new 529 account for yourself first .... then what you suggest does indeed seem like a decent MS method.
  23. Matt

    Matt Administrator Staff Member

    I've not checked this, but it seems odd that they wouldn't. 'Utah' doesn't custody the funds, and no custodian that I can think of can prevent you from taking your money.

    I didn't check your math here, but the theory you present is correct. The 529 withdrawal is 'Prorated' between principal and earnings. This contrasts with the Roth IRA, where a withdrawal may be 100% principal, even with gain on the account.

    Important point here. If you were to create a new 529, it would be a good way to keep past earnings 'locked in' which isn't a bad idea. But some people also seek to avoid all earnings because of tax, which is not correct. People make this same error when doing backdoor roths. By people, I include CPA/CFP advisors... they think that it is better to not earn anything to avoid tax, than earn something and pay tax on the earnings. This is improper thinking.

    Which would you prefer:
    • $500 with no earnings, withdrawn with no penalty, for a net of $500 (the MS route)
    • $500 with $500 in earnings, withdrawn at a 30% fed/state level plus 10% penalty for 40% of the $500 gain? This is a net of $800...

    Is $800 or $500 better?

    If you want a totally new 529, you'd also want to think about what makes it new, does a separate account make it new, or do you need different ownership/beneficiaries to make it distinct from the existing account?

    Personally, I don't mess around with MS and this stuff, seems simple, but so many opportunities to mess it up.
  24. El Ingeniero

    El Ingeniero Level 2 Member

    If 529 withdrawals are prorated between taxes and earnings, an then it would look like:
    • $1000 with no earnings, withdrawn with no penalty, for a net of $1000 (the MS route)
    • $500 with $500 in earnings minus 35% fed/state level plus 10% penalty for 45% of the $500 gain? This is a loss of $225 ...
    On the other hand, it would take a considerable period of time before you get a 100% return on investments in a 529.

    With respect to backdoor Roths, I was advised that I merely had to roll over what I have in my Traditional IRA to my 401k before contributing funds for rollover in order to avoid taxation. And my 401k does offer the option to step outside the carefully curated options on offer (Stable value, target date funds, 3 equity index funds, a couple of actively managed funds of funds, 2 bond funds). If I had no way to avoid taxes on the rollover I would still do it, though. I just hope it will still be around when I am ready to use it.

    I don't seek to avoid all earning because of tax. But I do think that if your earnings after tax don't meet a certain threshold, it's not worth it. That's a different discussion, though.
  25. Matt

    Matt Administrator Staff Member

    This is correct.

    This part makes no sense. There is no loss.
  26. El Ingeniero

    El Ingeniero Level 2 Member

    If you are using a 529 as a liquidation venue for MS, then what goes in, must come out, as you have CC bills to pay. Hence, if you put $1000 in, $1000 must come out. So I am comparing $1000 withdrawals, without and with prorated earning included in the withdrawals.
  27. Matt

    Matt Administrator Staff Member

    That's not a fair comparison. You need to keep basis consistent and compare on gain. It would look like this:

    $1000 basis with no earnings = $1000
    $1000 basis with $500 in earnings at 45% tax/penalty = $1275

    IE in either case you basis is consistent, and if you happen to get a penalty, rejoice, as you got a net gain.
  28. El Ingeniero

    El Ingeniero Level 2 Member

    Let's look at it a different way:

    I start with $2000 in a 529, where $1000 is contribution and $1000 is earnings.

    I buy 2x$500 Gift of College cards at TRU to make minimum spend and deposit them in the 529.

    I need to pay my CC bill, so how much do I withdraw from the 529? $1000 (contribution just made), or some amount greater than that to account for taxes?
  29. Matt

    Matt Administrator Staff Member

    You withdraw $1000, but in doing so you get a tax liability that needs to be paid. If your only source of income in this scenario is the 529, then you need to withdraw more than $1000 in order to pay your tax bill.

    That's not the point I'm making though.

    As previously discussed, it would be foolish to add to an appreciated 529 because of this reason, instead, it would be important to find a way to create an isolated 529, so you keep you $2000 529 that is mixed earnings and contributions in place, and access a second, distinct 529 for the flat $1000 in and out.

    The point I'm making is that flat $1000 in isolation, would be better if it were penalized, because the penalty only applies the basis, not the earnings.
  30. El Ingeniero

    El Ingeniero Level 2 Member

    So create a second 529, got it.

    UESP lets me create as many accounts as I want. I have one with my son as beneficiary that in the last few months has gone up about 5%.

    Could create another one with myself as beneficiary, no problem.

  31. Matt

    Matt Administrator Staff Member

    That may or may not work, but appears better than having just one account with earnings.

  32. El Ingeniero

    El Ingeniero Level 2 Member

    I was pretty serious with MS before I saw the handwriting on the wall and started reselling.

    A year or 2 later, not much stuff left for me to mess with. Every Walmart within an hour of me is pretty much dead for MO except if I swipe once; dead for billpay too. Few places are selling $500 at all, much less with CC.

    I suppose I can start doing a new ServeOne every month, loading it up, doing a billpay and shutting it down within a month. Aside from that, all I have left is CVS and the PO.

    To be honest, I think all MS is fraught with opportunities for loss. Not sure this is any more so than other venues.
  33. TyroneSchulase

    TyroneSchulase New Member

    You might try Fidelity 2% back Visa or Am3x. They have 529's. I redeem into an IRA with them. At $86 fees/10k GC through normal channels, they put in $200. For a little work, that's like a 133% match from my "employer". Never thought I would be working for WM...whole new meaning to "save money, live better". :)
  34. ChrisM

    ChrisM New Member

    It seems like the scholarshare website now only offers gift cards up to $300 :(
  35. FullMoonMadness

    FullMoonMadness Level 2 Member

    I kind of scratch my head at GoC limiting the GCs to $200 and $300 online. If they're willing to sell them in the store for $500 with the same fee, what is the point of limiting the e-GCs?

    I spent some time going through a page at GoC's website that linked to programs that use their service, and I couldn't find another with a $500 option. I will admin that with the large number of sites to comb (113) it is possible I missed an opportunity, especially if it wasn't designed well.

    I also went to three stores that theoretically carry the physical GCs, and nada. I have the worst luck. At Toys R Us they say they've never seen them, and even called another one down the highway with the same result. Supposedly Target is starting to carry them, and my local grocery store, but they didn't have them either.

    Now that the loophole to not have a 529 account and cash out of the GoC GCs has closed, I hope the sales decline enough that they'll raise the limit back up to $500.

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