Backer Review: 529 Plans The Easy Way

Backer might be the easiest way to get started saving for college in a 529 plan. If you're looking for an easy way to save for college - and want a solution that makes it easy to get family and friends involved, then this is it.

Backer is a platform that allows you to create a 529 college savings plan, and then provide a unique link to family and friends where they can contribute easily. This is the perfect solution for parties, holidays, and graduations!

If you're ready to start saving for college, check it out. Skip the review and open a Backer account here >>

Who Is Backer?

Backer says that its mission is to "revolutionize how Americans save money by making the process more collaborative."  The company was founded in September 2016 and is based in San Francisco, CA.

Backer, the trade name of Principly, Inc., which is a Registered Investment Adviser. The company formerly called itself CollegeBacker. According to Founder and CEO Jordan Lee:

"We changed our name to reflect the fact that 529s can now be used for more than just college, and to emphasize what's most unique about our service, that you can build a team of backers for your child."

What Do They Offer?

Backer makes it very simple for multiple contributors to participate in a single plan. This means family and friends can easily get involved directly with building your child’s college fund.

Personalized Fund Pages

Backer allows parents and guardians to create custom fund pages where anyone can easily contribute towards a child's savings goals. Using a link provided by Backer, family and friends can make one-time or recurring contributions.

There minimum contribution is just $5. Plus, they can make these contributions by credit card, debit card, or bank transfer. It's very easy to contribute!

Unless you upgrade to Backer 529 Plan (which we'll discuss next), the money that's contributed to your child's fund will remain in an FDIC-insured account. This option can't lose value, but also won't be able to grow at a significant rate since the money won't be invested. 

This could be a good option for families that are afraid of losing principal or have students that are close to needing to withdraw funds to pay for college. Plus, you'll get a $10 bonus added to your fund for every new backer who supports your child.

529 Plan Contributions And Gifting

If you don't have a 529 plan, Backer can help you setup a 529 plan for your child. They make it incredibly easy, and use a top-notch plan based in Utah.

If you already have a 529 plan in certain states (most of them at this writing), you can also link your 529 plan to your Backer account to unlock the features below - specifically easy contributions, gifting, Backer Bucks, and more.

Backer doesn't hold your funds directly - your funds are held within the 529 plan you choose. Backer’s role is to:

• Simplify the process of opening a 529 plan
• Advise on low-cost funds
• Reduce risk as the beneficiary ages

This is all automated and doesn’t involve speaking to an investment advisor.

Connect Your Existing Account

If you have an existing 529 plan account, you can connect it to Backer and reap the benefits of using their service (such as Back Bucks, gifting, and more).

529 Plans That Can Be Linked To Backer:

iShares 529 Plan - Arkansas
ScholarShare College Savings Plan - California
Scholars Choice College Savings Program (Advisor-sold) - Colorado
Stanley G. Tate Florida Prepaid College Program - Florida
Idaho College Savings Program (IDeal) - Idaho
CollegeChoice 529 Direct Savings Plan - Indiana
College Savings Iowa 529 Plan - Iowa
Kansas Schwab 529 College Savings Plan - Kansas
Kansas Learning Quest 529 Education Savings Program (Direct-sold) - Kansas
Minnesota College Savings Plan - Minnesota
Missouri's 529 Education Plan (MOST) - Missouri
TD Ameritrade 529 College Savings Plan - Nebraska
USAA 529 College Savings Plan - Nevada
Scholar's Edge (Advisor-Sold) - New Mexico
College SAVE (Direct-Sold) - North Dakota
New York's 529 College Savings Program Direct Plan - New York
New York's 529 Advisor-Guided College Savings Program - New York
Pennsylvania 529 Investment Plan - Pennsylvania
CollegeBound 529 (Advisor-Sold) - Rhode Island
TNStars College Savings 529 Program - Tennessee
my529 - Utah
Invest529 - Virginia
SMART529 Direct - West Virginia
SMART529 Select - West Virginia

Backer Bucks Program

One of the other great features of Backer is Backer Bucks. This is a program that allows you to earn cash back rewards that can be deposited directly into your 529 plan if you shop online through the Backer Bucks portal. 

This is a simple and easy way to save for college by getting rewarded for the shopping that you already do.

Plus, some of their partners include financial services, such as TurboTax for doing your taxes. Why not get rewarded for doing something you have to do?

What Is A 529 Plan?

529 plans are offered by states. You can invest in the 529 plan your state offers or one offered by another state. These plans are similar to a Roth but for education. Contributions to 529 plans grow tax-free and withdrawals are tax-free when used for qualified educational expenses.

Contributions into a 529 plan are considered gifts. For 2019, an individual can contribute up to $15,000 per child/account without gift-tax consequences. If you are married and have two grandchildren, you and your spouse can contribute $15,000 per child. That’s a total of 4 x $15,000 = $60,000.

There is also the 5-year election. This election allows you to contribute a large lump sum in one year and spread it across five years. For 2019, the 5-year election limit is $75,000. For example, if you contribute $60,000 in 2019, you can spread it across 5 years, turning the single contribution into $12,000 annual contributions.

Because the annual limit is $15,000, this leaves $3,000 available in unused exclusions per year. Some families use this election to shelter funds from estate taxes. It’s best to first speak with an accountant before applying this election.

Related: 529 Plan Contribution Limits

If you decide to withdraw the money and not use it for college expenses, you’ll incur a 10% penalty plus taxes on the withdrawal at your income tax rate. If the beneficiary decides to take money out of the plan for non-qualified expenses, they’ll have to pay a 10% penalty and will be taxed at their income tax rate.

Are There Any Fees?

You can get started saving for your child's future with Backer with no financial risk. Creating a personalized fund and accepting non-invested contributions is free as long as the fund has at least 2 backers.

If you want Backer to invest your child's savings in a tax-advantaged 529 plan, you'll need to upgrade to Backer 529. Backer 529 currently costs $5 per month per family. And the underlying funds that the 529 plan invests in have expense ratios of 0.14% - 0.15% per year.

There is also a gift processing fee of $1.99 per gift paid by the giver.

How Does Backer Compare?

Other companies like UNest and EarlyBird also make it easy for family and friends to help you save for your child's future. But it's important to note that neither of these companies offer 529 plans like Backer. Instead, they offer custodial accounts (UGMA or UTMA) .

Custodial accounts are a bit more flexible than 529 plans in that the money can be used to cover any expenses without penalty once legal control of the account has been turned over to the child. But your potential tax benefits are much greater with 529 plans.

As previously mentioned, contributions to a 529 plan grow tax-free and are spent tax-free on qualified education expenses. Earning inside UGMA and UTMA accounts, meanwhile, are subject to the Kiddie Tax. This means that unearned income inside the account that exceeds $2,500 per year will be taxed at the parent's or guardian's tax rate.

The bottom line is that if you're confident the money you save for your child will be spent on college expenses, 529 plans provide far more tax advantages than custodial accounts.

And even if there's a chance that your child could forgo college, there are still ways to use your 529 plan without incurring a withdrawal penalty. Here's a closer look at how Backer compares:

How Do I Open An Account?

You can open an account here.

Is My Money Safe?

Yes — the website uses bank-grade encryption and identity services.

If something happens to Backer, your 529 plan is safe because it is independent of Backer.

If for some reason the recipient doesn’t redeem your gift within 90 days, you’ll receive a refund.

You can also transfer your 529 plan if you decide to discontinue using Backer. Email them at support@backer.com to initiate the process.

Is It Worth It?

If you’ve been considering investing in a 529 college plan, Backer is certainly worth a consideration.

The only other app that does similar is U-Nest, but they don't offer 529 plans, only UGMA accounts, which don't have the same benefits.

Simplification in opening a 529 plan, lower fund fees, and reduced risk as the beneficiary ages are all great reasons to use Backer.

Backer FAQs

Let's answer a few questions that people often ask about Backer:

Can I create a fund if I'm not the parent of the beneficiary?

Yes, you can open an account as the fund owner or you can start a fund by sending a gift to the child's parent who will become the fund owner after redeeming.

What happens if someone accidentally sends a gift to the wrong recipient?

You can contact the Backer team at support@backer.com and ask them to re-route the gift to the correct fund.

How often can contributions be made to a fund?

Contributions can be made on a one-time, monthly or annual basis. There's isn't currently an option to set up weekly recurring contributions.

How often can you change your portfolio's asset allocation?

Backer allows a maximum of two asset allocation changes per calendar year.

Backer Features