Rewards credit cards

annikasfolks 2006-08-04 18:17:00 UTC #1

I have recently learned about Fidelity's and Upromise's rewards credit cards where a percentage of purchases can go directly into your 529 account. Fidelity's (fidelity.com)has to be linked to a 529 managed by Fidelity. Does Upromise's (upromise.com)card only work with 529s managed by Upromise? Any other rewards cards out there that can benefit other 529 accounts (Oppenheimer)?

Thanks.

rsinj 2006-08-04 19:53:00 UTC #2

Upromise is not linked with any 529 - though they point you to their own.

At any time after you have credits in your Upromise account you can send them a letter requesting they mail you a check and you can do what you want with it - whether depositing in some other 529 or depositing it into your pocket.

Fidelity's does have to be linked to a Fidelity 529.

cgorab 2006-08-07 07:49:00 UTC #3

www.BabyMint.com

user_9508 2006-08-09 05:52:00 UTC #4

The best card hands down is the Fidelity 529 card. I have created a business which creates credit card purchases just for this purpose. I live in the Northeast and purchase pre-buy oil with a group of people each year. Everyone pays me by check and I pay the oil company by credit card. No one minds because I negotiate a price (this year was $2.47 per gallon) that is usually 10 to 20 cents per gallon LESS than the going rate due to our volume. This year the purchase (due to the high cost of oil) was $300,000. I have 4 kids and called Fidelity about how to have the 529 credit card go into each kids account. They said I would need a seperate card for each account. So I asked if I could have 4 cards with each one pointing to a seperate child. They said yes. This year I put the maximum $75,000 on each card and received $1500 x 4 = $6,000 in the kids 529. The cash back feature on any credit card is tax free because rebates are not taxable (verified by accountant and lawyer). So I am getting money tax free and watching it grow tax free and it is a wondreful thing!! We put all our other business expenses and personal stuff on the cards as well. I also had my wife open up 4 additional accounts for my kids with her as the account holder and got another 4 credit cards (that makes 8 cards). We can call MBNA and move credit lines around depending on which card we want to use. I know this sounds terribly confusing and a real hassle, but we usually end up putting close to $10,000 in our kids 529's and have done this for the last 5 years.

tjkohler 2006-08-09 06:37:00 UTC #5

idk
You sound like me . Fidelity is one of the best cards, but you should aguement that card with Chase/Citibank cards that give 5% cash back on gas and groceries.

Also, I have over $100K in credit card balance transfers that are making 5.6% interest in CDs for me while I'm paying 0% on the money. You can have the companies send you the checks for your transfers.

It all depends on your credit. But free money no matter how you look at it, or do it, is awesome!

meb24 2006-08-09 07:05:00 UTC #6

tjkohler:

Didn't know you could have the CC companies send you the check for balance transfers. Will have to check into this next time I get 0% transfer offers.

I have done the large-item purchases with no interest for 12-18 mos. & deposited the CASH in interest bearing accts. waiting to pay for large-item purchases. I consider them 0% LOANS, but only better because I am getting a little interest on my money while waiting to pay them off.

Thanks for the TIP regarding the Transfer balances.

My motto "FREE is BEST".

tjkohler 2006-08-09 08:16:00 UTC #7

meb24
Not all will send it directly to you (Discover won't). But regardless if they will send it to you or not, just have them send it to a card you use, then have that card send you all the credit you have (ie Card A has a $1K balance because of your use. Card B sends Card A $30K. Card A now has a credit of $29K.)

dahinds 2006-08-11 20:45:00 UTC #8

Your scheme sounds abusive, if not fraudulent. I would check with another lawyer if I were you. This sounds like a clear case of what the IRS would call a "nonaccountable plan" for reimbursement of business expenses. The rebate/discount is earned by and should be returned to the business.

This is completely different from tax treatment of rebates on credit card purchases for personal use.

user_9508 2006-08-12 06:01:00 UTC #9

Crazy Pete,

I checked multiple times about the tax treatment. $15,000 of the oil purchased is for my own personal use. I do not profit from the purchases at all. I originally created the business to lower my cost and over the years, people have heard about it and called me to join in the group. When I realized the credit card rebates were so valuable I switched to cards that had higher rebates. I also have a NE Patriots card and get tickets to games, on-field passes and memorabilia.

dahinds 2006-08-12 12:01:00 UTC #10

If you are netting $6,000 in credit card rebates then you are profiting from the business, right? The $300,000 in oil had a net cost to you of $294,000. If you tell the IRS that your business broke even (or otherwise do not report), you're concealing $6,000 in net income. I do not think that the fact that you yourself purchase more than $6,000 worth of oil enables you to argue that you're just earning an oversized discount on your portion of the transaction.

Here is an IRS comment mainly about the somewhat related issue of personal use of frequent flyer mileage earned on business travel:

http://www.irs.gov/pub/irs-drop/a-02-18.pdf

Note specifically the following:

I don't see how you can possibly argue that what you're doing is other than a tax avoidance scheme: you yourself described it as a way of avoiding taxes.

user_9508 2006-08-13 19:36:00 UTC #11

Crazy Pete,

Your post does not make sense to me. The IRS statement you posted clearly says that they are not enforcing this type of compensation.

"Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel."

dahinds 2006-08-14 15:08:00 UTC #12

They are not enforcing with respect to "frequent flyer miles or other in-kind promotional benefits". The section I quoted says that "this relief does not apply to... benefits that are converted to cash", and they also say it does not apply when the benefit is used for tax avoidance purposes.

If you wish, go back to your lawyer with that IRS note and ask them again if they still think that the net income of your business is tax free if it comes to you in the form of a credit card promotional benefit.

It is plainly obvious that your strategy of purchasing oil for your neighbors is a business, and you believe the $6,000 in net income generated by your business is not taxable if you launder this income via a credit card promotional benefit to conceal its source. There is no ambiguity here about how to properly account for the timing and valuation of the benefit; you're getting cash and you know exactly how much is attributable to your business. How can you interpret this as anything other than employing a promotional benefit for tax avoidance purposes?

This is not a good forum for tax advice. If you're interested in other opinions you might try posing the question at http://fairmark.com/forum/.

user_9508 2006-08-15 14:52:00 UTC #13

Crazy,

I am not converting the rewards to cash. The rewards go into an education 529 plan. They are not being taken out to benefit me or changed into something they were not originally designed for. The IRS statement clearly means that someone should not take an award (like frequent flier miles) and sell them, thus converting the miles into a cash reward. If the original reward is a cash equivilent than the IRS section you point to simply does not apply. This is not a scheme. Sounds like you are a little jealous.

Are you saying just because of the size of the transactions it is fraudulant? If I had not phrased my original comment as a "business" your argument does not hold water. I never intended this to be a business. I have never advertised or marketed this so called business. I do not have a marketing plan and no profits are generated. I called it a business only because it seemed that was the best way to describe it so others would comprehend the idea.

Are you saying that if you purchase an item at Sam's Club (or where ever) on your discover card for a friend or relative who then writes you a check, that the 2% cash back you recieve is taxable. Especially if you knew that you would recieve that cash as a benefit? I know plenty of people who will charge items for others to recieve the rebate benefits on a regular basis.

I am very comfortable with what I have been doing and do not view it as a scheme in any way.

dahinds 2006-08-15 19:25:00 UTC #14

If you purchase an item for a friend, I think the IRS would say that technically the cash back is miscellaneous income and should be reported, though they are not going to enforce it for the same reasons they're not enforcing on frequent flyer miles. The IRS did not say that mileage is not compensation: they said they're not going to pursue it. They're not going to pursue you for selling a $20 watch on Ebay either, but if you set up a storefront with 1000s of items and gross $300,000 they might be more interested.

The $6000 in your kid's 529 account is cash as far as you and the IRS are concerned. You are free to withdraw that money at any time for any purpose with penalties applied only to the earnings. You have $6,000 in net profits from your activity, whatever you choose to call it. It is "tax free" only to the extent that you choose to underreport this income. You may be comfortable with tax evasion and the (small) risk of getting caught; you certainly would not be alone on that score!

rsinj 2006-09-05 05:08:00 UTC #15

tj - just saw this on another board regarding Citibank:

Has anybody else got this letter changing your 5% cash back to 2% on grociers & gas, and adding 2% cash back on utilities,

tjkohler 2006-09-05 13:03:00 UTC #16

rsinj
Yep, a week or so ago it came in the mail. I had stopped using it for the year since we maxed the $300 so I almost through it into the shredder thinking it was more convience checks. Chase has one that has the same deal, 5% on gas and grocieries. I don't have that one (although I should for the second half of the year when I don't/can't use citi) it would be interesting if they are reducing theirs too.

rsinj 2006-09-05 21:47:00 UTC #17

Check the terms on the Chase card - generally Chase charges annual fees for their cards. I had thought that almost all issuers eliminated annual fees, but Chase maintains it on many of their cards (all that I know of). On some, they give with the first year free, but then beginning the next year charge anywhere from $50 to $75 annually.

payingforschool 2006-09-06 09:02:00 UTC #18

Figured I would call Citi to ask when change becomes effective. Cust Serv not a clue.

Do you know when this is supposed to take effect?

xanuda 2006-09-06 20:09:00 UTC #19

I think the date was mid october -12th or 13th

tjkohler 2006-09-07 07:03:00 UTC #20

Takes affect sometime in the middle of Oct so xanuda is probably right on.

As far as Chase charging fees. When I looked at it back in Dec it didn't charge. However, even if it did, simple tell them you don't want to be charged, you'll be amazed on how quickly they get rid of annual fees if you have good credit and use your cards. About the only types of cards that it is 'hard' to get rid of the annual fees are airline mile cards, and from what I've been told it's becaue the airlines actually charge the credit cards a fee. But the one I had 7 years ago still waived it for me. I've since moved on to things that give 2-5% cash / investment rebates. I am sad / disappointed with Citi's reduced rebate ... but 2% is still good.