An Easy Way to Save for College

When we had our first child this year, we started to think about saving for college expenses. Neither of us had any college savings to speak of, and while our parents helped out as best they could, after two degrees (undergraduate and Masters) each we were left with quite a pile of student loan debt. We think having our child work to pay for part of her education someday teaches a valuable lesson, but at the same time we want to be prepared to lend a hand as well. After the baby was born, we switched our primary credit card to the Fidelity Investments 529 College Rewards American Express Card.

For those unfamiliar with 529 plans, basically you contribute after-tax money to the savings plan (although some states offer a state tax deduction for contributions). The growth of the plan assets is not taxable, and when you withdraw the funds, as long as they are used for qualified education expenses they are nontaxable. Essentially you receive tax-free growth on the plan assets â€" which can mean a heap of tax savings especially if you begin investing when your child is still far from college. You can learn more about 529 plans at Wikipedia.

We don't carry a balance on our credit card; it is paid off every month. We do use it for all of our monthly purchases like gas and groceries though. The way the 529 College Rewards American Express works is that 1.5% of your purchases are deposited into your Fidelity 529 account. The deposits are made quarterly, as long as you have a balance of at least $50 in rewards. In order to earn $50 in rewards, it is necessary to spend $3,334 over three months.