Regular readers may have noticed my absence from the blog this past month (and my sudden onslaught of posts in the past 24 hours as I returned from paternity leave). As Greg noted a few weeks ago, I hadn’t disappeared forever but rather the newest member of the ‘miler family joined us and I’ve been enjoying my paternity leave immensely. Baby Rey The Second (no, that’s not really his name) has expanded our capacity to love by an order of magnitude. Thankfully (from a professional standpoint), he also expanded our points balances: in the first month of life, he’s made us a nice chunk between college savings, paying the hospital bill, and his first credit card. Here’s how.
Deciding on a college savings vehicle
There are a multitude of ways to save for college. The option on which we settled was a 529 plan. There are some drawbacks here (most importantly that if our son doesn’t decide to pursue higher education, we may end up on the hook for a penalty for non-qualified withdrawals). Still, we settled on a 529 plan (and specifically, the New York 529 plan) because (in descending order of importance):
- New York’s 529 plan uses the same Vanguard funds in which we would otherwise invest if we saved some other way. You can customize the investments in the New York 529 plan pretty nicely and get broad index funds with low expense ratios (like Vanguard’s Total Stock Market & Total International Market funds, Total Bond Market, etc). These are the same types of things I would invest in whether or not the money were in a 529 plan. Note that not all state plans are created equally: some states offer much narrower and/or more expensive options. You can choose to invest in any state’s plan. However, as noted below, there may be an advantage to choosing your home state’s plan.
- By using the 529, we won’t owe tax on growth or withdrawals as long as they are used for educational expenses. With 18 years to grow, hopefully that’s a nice win.
- Because we are New York State residents and we chose the New York State plan, we can additionally get a tax deduction on state taxes. By investing in the New York plan as New York residents, we can deduct up to $10K in contributions in a calendar year as a married couple filing jointly. This will likely save us about $649 in taxes this year.
- We can easily fund our 529 with a credit card and stack rewards.
Earning rewards with a 529 college savings plan
Greg has written extensively about Gift of College Gift Cards and how they can be used to fund college savings. See the post Miles for College for a full rundown. The short story is that you can buy Gift of College Gift Cards at select stores and use those gift cards to fund a 529 plan. The purpose of buying gift cards rather than funding the 529 directly is to earn credit card rewards. While the cards carry an activation fee, it is possible to earn rewards that beat the fee in some instances. Again, if this concept is new for you, I recommend reading Miles for College for more detail.
Cumberland Farms (a regional gas station found in New York, New England, and parts of Florida) sells Gift of College Gift Cards. A $500 card has a $5.95 purchase charge (though note that in Vermont I think they only sell lower-denomination cards). This means that even using a credit card that earns 2% cash back would yield rewards that come out ahead of the fee ($10 in rewards – $5.95 in fees = $4.05 in profit on every $500 saved). Credit cards with a gas station bonus category may come out better and we took advantage of a better-than-usual opportunity as outlined below.
I should note that my wife and I were together and preparing for the future for a long time before settling down to get married, so we’ve been saving and planning for years. We therefore had $10,000 set aside to be used for our new son’s college savings and we intended to invest it all this year to get the full benefit of the deduction (and maximize the time the money has to grow for his education).
Thus we bought a total of $10K in Gift of College Gift Cards at Cumberland Farms stores recently. While I can’t say with certainty that the same limits apply in all regions, we found the following with regard to purchasing at Cumberland Farms in the Capital Region of New York State:
- The register has a hard limit of $2500 in gift cards in a single transaction (We attempted $3500 and though the transaction was approved by the credit card issuer, the terminal returned an error and failed to load two of the cards. This was initially concerning since the transaction had been approved and the pending charge showed the full $3500 plus activation fees, but when the final charge posted a few days later it was for $2500 in gift cards plus activation fees).
- Once or twice when an employee wasn’t sure if we could buy the amount we brought to the register, a manager always approved and it particularly seemed that they were more comfortable when they realized we were paying with a credit card (perhaps they are finding counterfeit cash to be a bigger issue than credit card fraud?).
Our purchases of $10K in Gift of College gift cards carried $119 in activation fees, so it cost us $119 to fund our 529 plan via credit card. There are no further fees to load the Gift of College cards and deposit the money in your chosen 529 plan. Since there are no load fees on the Vanguard funds that the New York State plan uses, this means that every $500 gift card shows up at full value in the investment account. It can take 10 to 14 days for the funds to show up in the destination 529 (and for that reason, I first loaded a single $500 card and waited to be sure that it posted in the 529 plan to make sure everything was connected properly before depositing the rest). In my case, it actually took less than a week for the first $500 card to show up in the 529 account. For more details on the mechanics of using Gift of College to fund your 529, see Miles for College.
Both Chase and Amex Marriott cards have recently carried a temporary bonus on gas station spend for those who opted in (See our COVID Credit Card Enhancements Ultimate Guide for full details). Chase offered 10x on up to $3500 in purchases per Marriott card through September 30th. Amex is offering 10x on up to $7500 in purchases per card through October 31st (for those who opted in to the Amex Offer). Since Amex has been clawback happy in recent months, I only wanted to use Chase cards to buy Gift of College cards. Luckily, my wife and I have 3 Chase Marriott cards between us, which means that we had $10.5K in bandwidth at 10x (and we therefore saved Amex Marriott cards for actual gas station and restaurant spend).
At 10x, spending $10,119 (with activation fees) yielded us a little over 100,000 Marriott Bonvoy points total. Note that it wasn’t exactly 10x on the full $10,119 because we overshot the $3500 spending cap on each of the first two credit cards because of the gift card activation fees. Buying $3500 in Gift of College cards comes with $41.65 in activation fees and we didn’t attempt to split tender to thread the needle and avoid going over the $3500 10x cap — so we spent $3,541.65 on each of the first two credit cards and then $3,035.70 on the third card. That means we technically earned about 100,400 Marriott Bonvoy points in total. We’ll call it 100K for easy math.
Somewhat unfortunately, points are split between my wife’s account and mine, but Marriott allows the transfer of up to 100K to another person’s account per calendar year, so we can easily combine them. If at least one of us has Gold status or higher (and in this case we both do), it is free to transfer the points in either direction. See our Marriott Bonvoy Complete Guide for more details.
Based on Frequent Miler Reasonable Redemption Values, 100K Marriott points are worth $720. I typically redeem points at 1cpp or better (approx value of $1,000), but since you can sometimes buy Marriott points for less than 1 cent per point, it doesn’t make sense to value them quite that much for our purposes. Suffice it to say that I’ll get significantly more than $119 in value from the rewards earned for buying the gift cards. Here’s how the math works out based on Reasonable Redemption Values:
- $720 in Marriott points – $119 in activation fees = $601 in “winning” by funding with a credit card.
If we add that $601 with my expected $649 in tax savings this year, we’ll see a total $1250 win thanks to a combination of funding a 529 and doing it via credit card through Gift of College cards. That’s a nice start on coming out ahead thanks to saving early.
Paying the hospital bill to earn more points
Having kids is expensive. I don’t mean that in the metaphorical sense: the delivery of a newborn is just downright expensive. This year, we were able to change to an obscenely expensive health insurance plan that, when including the cost of premiums and our responsibility toward the bill, managed to get us a net savings of a couple thousand dollars over what we paid for Baby Rey The First a few years ago. Still, we were on the hook for thousands of dollars.
Big spend like that is a good opportunity to earn a welcome bonus on many new cards, so we knew that we could open a new card to get a tidy sum of points.
However, we wouldn’t have necessarily needed to open a new card to earn a nice haul. As if on queue when the bill generated last week, Office Max / Office Depot came out with a Visa Gift Card deal. That was a nice sight to see because our hospital takes payments online via credit card. During the height of the pandemic in our state, we were stuck with a bunch of gift cards thanks to not leaving home to liquidate them and we had some medical bills to pay, which is when we learned that we could easily use Visa and Mastercard gift cards to pay the hospital online.
We could have ultimately earned 5x Ultimate Rewards points on our hospital bill by using a card that earns 5x on office supply store spend (we have the no-longer-available Ink Plus card, but the Chase Ink Cash card would achieve the same end) to buy Visa Gift Cards and then use those Visa Gift Cards to make partial bill payments with the hospital. It’s a bit of a tedious process in paying $200 at a time, but well worth it for the points. Given that Chase has extended the Pay Yourself Back feature, the points earned at an Office Supply store can be worth 7.5% in cash when you redeem the points for travel or for groceries or at home improvement stores. That’s a pretty big return over thousands of dollars.
Until recently, we just hadn’t thought about paying hospital bills via gift cards. However, as noted above, we stumbled on that during the pandemic. Our hospital has a really confusing system in that bills come in the mail from a third-party billing company and can be paid via mail or over the phone with that biller or online via the hospital’s patient website. However, payments made via the hospital’s patient website don’t necessarily get automatically applied to the intended bill from the third party biller (and the third party biller doesn’t have a website to pay them directly online) – it’s a confusing system that I can only half explain after hours of trying to understand how it works. Coincidentally, my wife accidentally overpaid what we owed on one of our previous bills recently. The hospital asked whether we would like the overage to be applied to other bills (from other visits) or if we would prefer a refund check. Mrs. Reyes happily requested a refund check and said that we’d pay those other bills separately.
Thanks to the way hospitals bill things like the delivery of a newborn, we actually received several separate bills for various parts of our hospital experience. Hopefully we’ll keep better track this time around, but it’s nice to know that if we accidentally overpay the delivery bill by a few dollars, they’ll be happy to send us a refund check.
Knowing that we had a hefty chunk of spend there, we wanted to take advantage of a good credit card offer.
Since we’ve now got Bank of America Platinum Honors thanks to moving retirement savings to Merrill Edge (See: Retirement planning mistakes fixed by credit cards), we wanted to have a Bank of America Cash Rewards card in the long-term (for more on why, see: Bank of America Credit Cards: Awesome if you have $100K lying around). The problem with applying for that card is that the welcome bonus on the Cash Rewards card isn’t particularly lucrative at just $200.
However, Bank of America has in the past allowed product changes from the Alaska Airlines Visa Signature card to the Cash Rewards card. It just so happened that until October 1st, the Alaska Airlines Visa Signature was offering a 65K welcome bonus. Unfortunately, that offer is no longer available, but until the first of the month the offer was 40K miles after $2K in purchases in the first 3 months and 25K additional miles after $8K in total purchases in the first 6 months. It therefore made sense to apply for the Alaska Visa now with the goal to product change to a Cash Rewards card a year from now when the next annual fee comes due.
Between the cost of the hospital bills and the obscenely expensive insurance premiums for the rest of this year that we’re incurring specifically because of the delivery, we’d hit the $8K spending requirement even if we didn’t make any overpayment on the hospital bill. Between that $8K spend and the 65K welcome bonus, that will be a total of 73K Alaska miles when it all posts. The future value of Alaska miles is somewhat difficult to predict given that we don’t know how their newfound membership in oneworld will affect their award chart (and we know even less about the state of travel for the next year or two), so we don’t know exactly how much those miles will be worth. However, I looked at it this way: we used 50K Alaska miles per passenger last year to fly Cathay Pacific business class from Singapore to Hong Kong to New York — a flight that would ordinarily cost thousands per person. I was happy to replace the miles used for 1.5 passengers on that trip with a single welcome bonus & its associated spend.
Baby’s first credit card
At that point, our little guy wasn’t quite done pulling in points. As a miles-and-points guy, I couldn’t let my new son go without any plastic for long. I’d added my first son as an authorized user on one of my cards shortly after he was born (See: Baby Rey has arrived, but is preparing for departure) and planned the same for Baby Rey The Second.
And then Marriott decided to throw some points at us. My wife received an email last week advertising 10K Marriott points for adding an authorized user to her card.
That made the decision an easy one: Baby Rey’s first credit card is a Marriott Bonvoy Boundless card. While we haven’t yet seen the 10K bonus points, I imagine we will when the statement cuts later this month.
I don’t actually know whether being an AU on this account will do Baby Rey much good down the road (even if we keep the account open for the next 18 years, it’s hard to predict what effect an AU account will have that far in the future). However, I do know that I would have added him to a card for the novelty of it, so I was giddy to get 10K points (worth $72 based on our Reasonable Redemption Values) for doing so.
Adding it all up
Between 100K Marriott points for college savings, 73K miles for the Alaska bonus & spend earned via the medical and insurance bills, and 10K points for adding him as an authorized user on a Marriott account, that’s 183K points and miles earned thanks to Baby Rey in his first month of life. And that’s to say nothing of the 5x we earned buying diapers, wipes, another car seat, and various baby needs like that on Amazon as it was a Chase Freedom bonus category through September 30th. That ain’t a bad start, kid. Keep up the good work.
While I have enjoyed a fantastic month at home with my family, it’s also great to be back at the blog. A new addition to our family has made for an exciting time in our lives and though it means some sleepless nights right now, we know the joy it will bring long-term will only compound. While we’re practicing an abundance of caution at the moment and have no travel plans in our immediate future, we know that we will travel with our kids when we feel right doing so and I’ve written about why. When we do, we’ll certainly put these points to good use. I think I can speak for his mother when I say that after carrying his weight for nine months, it’s good to see him pulling his own weight already so early on! Thanks to leveraging the use of credit cards, we’ve earned a nice haul on the expenses and savings incurred from the beginning — and goodness knows, this is just the start of twnetysomething expensive years to go. Here’s to more joy and more Joy of Free to go with it.