Pragmatic Finance

As I mentioned before, I get 5% back with the Citi Platinum Select mtvU Visa when I go to restaurants, bookstores, or movie theaters and with the Citi Dividend Platinum Select MasterCard when I go to gas stations, drugstores, and grocery stores. But what about other purchases? For most of these I then use the MBNA/Fidelity Investments 529 College Rewards Card.

This card pays 2% cash back in the form of a deposit into a Fidelity 529 account. The deposits are made every 3 months (March 30, June 30, Sep 30, and Dec 30). You can receive rewards up to $1,500 annually so this can cover up to 75k of spending per year that you don’t have other special cards for.

So what about this 529 plan?
This could be a great excuse to open up a 529 plan for your children or you could even get the distributions out yourself and have a great cashback card. You will want to open up a 529 plan with Fidelity before you begin so that you can input that account number on the application form. There are four options but they seem to be pretty much the same. I went with the Unique National Plan by New Hampshire.

You can choose between two different investment options on how to invest the money. There are age based plans that get more conservative as the target date approaches. There are also custom plans that set a certain asset allocation between stocks, bonds, and money market funds. You can choose anything between 100% stocks to 100% bonds and money market funds. I went with one of the age options. I decided to choose a fairly conservative date of 2012 so that it would be fairly constant. You can also change the plan if you wish. If you want to keep the money in the account long term you should probably invest more into equities. If you want to withdraw the money immediately and simply have an awesome cash back card you can invest mostly in fixed income funds.

The next decision to make is who to put as the beneficiary. You could select your children and start a college fund for them. Another option is to make yourself the beneficiary. The latter really works well for me as a college student with no children. I can withdraw the money anytime and face no penalties or taxes, even on the growth. Even if you aren’t in college you can still withdraw the money that you (or MBNA’s rewards) deposited without any penalty. If the beneficiary doesn’t have any college expenses then they must pay income tax and a 10% penalty on the growth of the fund but no one pays anything on taking the principal out.

The only drawback is that you must set up a monthly deposit of $50 or pay an annual fee. But since you can take that money out that shouldn’t be a problem. Just don’t withdraw all of the money in the account or they will close it. There is a 0.30% annual maintenance fee for administering the account but in the grand scheme of things that is fairly insignificant.

That sounds like too much work…
After you get everything set up there is no work at all other than getting your money out when you want it. If you don’t want to bother with a 529 plan, though, then there is also a MBNA/Fidelity Investment Rewards card that gives 1.5% back straight into a brokerage account. There are no minimums or fees with their brokerage accounts so it’s no problem if you just wanted to use it to get cash back. If you go with that card instead, you might want to check out the $100 Fidelity new account bonus being offered.

Overall, though, I am very happy with the 529 card. The extra cash back is definitely worth it. I can change the asset allocation and beneficiary if I later decide to use it for college savings for my children one day.