McLimans advises cardholders to make sure that the rewards program won't let them exceed the yearly $5,000 investment limit on IRAs for account holders younger than 50 and the $6,000 yearly limit for those ages 50 and older.
There are no limits on yearly 529 contributions. However, single account holders who contribute more than $13,000 per year or $65,000 over five years (or $26,000 and $130,000, respectively, for married couples) will have to pay a gift tax on their contributions, according to the Internal Revenue Service. Fidelity currently prevents cardholders from exceeding their yearly contribution limits, but Upromise does not.
If you're considering a credit card that's linked to a 529 plan, Hohler recommends investigating where the 529 plan is held when considering where to stash your reward points.
"Anybody who's looking to save within a 529 should always look at their state plan first," she says.
On top of offering federal tax incentives, many 529 plans offer state tax deductions or credits for residents who invest. For example, Upromise currently administers 529 plans in 17 states while Fidelity operates them in four states. Cardholders who live outside of those states should carefully compare tax incentives offered in their resident state's 529 plan with the plans offered through the credit cards.
Rewards aren't enough
To maximize their rewards, investment card holders should be sure to pay off their balances each month to avoid having their cash incentives eaten by rolling card balances, Ulzheimer says. He also reminds consumers that investment-rewards cards are meant to boost savings, not replace a cardholder's savings strategy.
"It's certainly not something that should be used in lieu of normal retirement investing, but it is nice to stick another $50 in here, $50 in there," he says. "If someone, frankly, is using this as the way to fund their retirement and it's the only way, he's going to be in for a rude awakening when it comes time to actually stop working."