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Pair Balance Transfers and a 529 to Make Money on Tuition Payments

With tuition payments due this month, who couldn’t use a few extra dollars towards books and classes?

Time to learn how to use some of our previous 0% Balance Transfer offers [1] in combination with your state’s 529 plan [2] for some big savings!

You can use this strategy to create a self-managed monthly tuition payment plan or earn some extra interest on money borrowed at 0%!

How It Works

  • Most 0% Balance Transfer offers [3] that we’ve covered charge a 3% fee right now.
  • Most state 529 plans, including the Ohio 529 College Advantage [4], offer a state income tax deduction on residents’ contributions.
  • If your state income tax rate is equal to or higher than the transfer fee, you effectively eliminate the fee, getting a 0% (or better) loan.

New York Example

  • A married couple earning $100,000 has an effective state tax rate of 6.85% and has 1 child going to college.
  • The New York State 529 [5] offers a deduction of up to $10,000 for married couples.
  • The couple takes out a balance transfer [1] of $10,000 for a fee of $300 (3%) & puts it in a 529 before using it towards the child’s tuition.
  • When the couple files their 2010 taxes, they will save $685 (6.85% of $10,000) as a result of deducting the 529 contribution.
  • Savings = $385!

More on the Strategy

Additional Savings. The great thing is that, in the above example, the savings is not limited to $385. The ability to pay the $10,000 over the term of the Balance Transfer Offer (instead of upfront) allows for savings in interest avoided by not taking a student loan, interest earned while keeping payoff money in a CD or savings account until it’s due or even just the peace of mind of having cash in the bank during a lean few months.

State Tax & Balance Transfer Rules. Your state income tax brackets, 529 deduction limits [6] and balance transfer fees will vary so make sure you investigate them to determine whether this strategy will work for you.

More Cash Savings! You can take this strategy one step further and use your saved money to buy books with the Fidelity 2% Cash Back Credit Card [7] and Ebates [8], earning even more cash back on purchases you have to make anyway!