Using Credit Card Rewards To Save For College: My Plan
A few weeks back Benjy wrote a great article about double dipping cash back returns by investing in retirement accounts. That article motivated me to do something I have been thinking about for a while. If you listen to or watch the podcast then you already know what I am talking about. I want to start using credit card rewards to save for college for my kids. My plan is to set a monthly goal, and to reach that goal, by using the various tips and tricks we share here at Miles to Memories. I will update you on my progress monthly. Details will be shared on where the money is coming from and how the account is doing. I will be starting from scratch so we can all go along for the ride. Hopefully some of you are compelled to join along with me and start your own fund and we can compare notes.
Disclaimer: This is for entertainment purposes only and is in no way financial advice.
My Investment Vehicle Choice – Roth IRA
I will be using credit card rewards to save for college and I will be investing those gains in a Roth IRA. That is a strange choice for college savings, and it might not make sense for everyone. That is especially true if you are not under the earning limits, but I think it works best for me. You also must have earned income in order to invest in a Roth IRA (at least $6,000 a year).
There are a few reasons I am going this route:
- Money deposited is done with after tax dollars and the money is not taxed upon withdrawal when used for retirement.
- A lot of the money I am earning is tax free too, since only credit card referral bonuses currently get a 1099.
- You are allowed to withdrawal deposited money penalty free since it was made with after tax money.
- This does not include any gains made on the deposited money.
- I can use it for retirement should my kids decide to go a different route and not go to college or if they get some kind of scholarship etc.
I will admit that it is a strange decision, going with a Roth IRA instead of a traditional college savings plan, but there is a method to my madness. What I am doing is essentially hedging my bets. What if my kids don’t go to college or they get a scholarship etc? By going this route I don’t have to worry about that. I won’t have access to the earnings until retirement, but I would be able to use the deposited money for school without any taxes or penalties being levied. If I had money left in the college savings plan then I could be hit with taxes and fees if not used for college.
I decided to go with SoFi for my IRA account. I like their website, it is very user friendly, and I already have a SoFi Money and SoFi Invest account with them. They don’t have any fees or minimums on the account which I like too. The one downside is they haven’t been in the game all that long.
Since people are very focused on the investment vehicle and not the overall idea of the process I wanted to clarify a few things. This is not the only source of retirement savings we are doing and this is not the only vehicle we are using to save for college. The purpose of this series is to show what we can do with our skills when used for things other than travel. Use whatever investment source you want, that is not the important part. What works will heavily depend on your situation and what else you have going on in your life.
My Game Plan
So how do I plan on using credit card rewards to save for college? I am taking a 4 pronged approach. Not all are credit card rewards exactly but it falls under the travel hacking umbrella.
I will use the following to hit my $500 a month goal:
- Credit card welcome offers
- This will be a mix of cash back cards and point offers, hello Chase Freedom Unlimited!
- Cashing in points and cashback earned from every day spend
- Bank bonuses
- Reselling profits (I do this very sparingly)
Each month I will use a mix of these things to reach my $500 goal. That will put me at the $6000 a year Roth IRA cap. Which would give me a total of around $55,000 by the time my son starts his freshman year of college. It won’t pay for the full boat but it will put a dent in it for sure.
I Plan On Giving Updates Monthly On My Progress
I will be sharing everything along the way, giving you complete transparency. From the way I earned the $500 each to the current account bonus, it will all be out there. We are starting this journey together so I feel like you should be involved in the entire process. Like I said above, I hope you join along and share your data in the comments each month. I think that will only drive us to keep with it.
Look for my breakdown for August in the next few days. I will try to get the new update out on the first of every month, or within a few days of it at least.
I will be using a nest egg I have from cashing out Chase Ultimate Rewards with the pay yourself back feature during this. So far, I have cashed in around $3,500 worth of points. Just using that money each month would feel like cheating though, and lessen the experience, so it will sit in reserves until I need it.
Plus, my original plan was to keep it on the sidelines to book cash travel when things open up. I would still like to do that if at all possible. So I will use it to plug holes in months where I come up a little short, but I will do my best to earn it using other avenues each month.
Using Credit Card Rewards To Save For College – Final Thoughts
I think I am more excited about this series than any I have written. A big part of it is that it will hold me accountable and ensure I stick with it. It will also mean that I am helping to secure my children’s future (or my own if they don’t need the money 😂).
More than that though, I think it is something I would look forward to reading each and every month so I hope at least some of you feel the same way. I always enjoy reading posts by nomads sharing their expenses etc. (Stephen Pepper does a great job of this). I feel like this is in that same boat. We will be doing this together, total transparency. And like I said, I hope some of you join in on the fun and update me with your progress.