$100k+ Credit Card Spend Per Year: What card offers the best return?

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Mr Chill
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$100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Mr Chill » Mon Jan 29, 2018 2:19 am

Our family has a $125k home improvement project we'll be taking on in a few months. Our contractor accepts credit cards.

Commerce Bank currently has a card that is 1.5% cash back for all purchases, but with a bonus of 5% extra in points if you spend over $50k per year. Effectively, that would make our return 6.5%, and even with contractor's credit card processing fee of 2.5%, we're still up 4% on the total project cost, not to mention using the card for everyday purchases throughout the calendar year. The only downside is the annual fee of $95, but should easily be offset by our rewards earnings.

Here's a short write-up on the card I found by googling:

https://lendedu.com/blog/commerce-bank- ... astercard/

Is there any other card that offers such a high cash back percentage or barring that, a huge sign-up bonus for spending $100k+?

Our net worth is about $1.7m, for what it is worth. Any recommendations?

Goal33
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Goal33 » Mon Jan 29, 2018 2:23 am

You sure the 5% is not on the 1.5%, making it 1.575%? If that’s not the case, I’ll apply and charge myself millions using a credit card processor.
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Mr Chill
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Mr Chill » Mon Jan 29, 2018 2:40 am

That is a sound point. I called and spoke to a bank rep and they said it was 6.5% total. Now, just to be sure, I'll certainly want to read the fine print and also confirm in writing that it is actually the 6.5%, not 1.575% as you were pointing out.

I also found Alliant's Visa to give 3% cash back in the first year, with an annual fee of $59, designed for those who spend over $50k per year on their card: http://www.alliantcreditunion.org/bank/ ... ature-card

Any other suggestions as an alternative for big spenders?

Superfood
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Superfood » Mon Jan 29, 2018 3:57 am

Whoa.. 5% cash back? That is amazing.

BTW - I was looking into that Commerce Bank card, you'd have to apply for it in a branch and probably need to be a private bank member as well. If you can get it... go for it.

madbrain
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by madbrain » Mon Jan 29, 2018 6:34 am

Negotiate with your contractor to get a cash/check discount vs using credit. You can probably get at least 2% off and possibly more. If you get 3% off, it's probably a good deal.

Otherwise, for $100k spending, you can probably get 25 - 40 new cards with juicy signup bonuses on each. May require that you and your spouse apply for 12-20 each separately to maximize bonuses. It will take time and work, though. But it will be also very likely return more than 5%.

CDub
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by CDub » Mon Jan 29, 2018 7:15 am

That Commerce Bank card is really compelling. I would go for that if I could, unfortunately - it looks like you ahve to apply at a branch in Missouri, Kansas, Illinois, Oklahoma, or Colorado.

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prudent
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by prudent » Mon Jan 29, 2018 8:22 am

I wouldn't bet that the 5% is actually cash back. I notice they say the 1.5% on every purchase is cash back, the 3% on travel and restaurants is cash back, but the 5% on >$50K spending is a "point dividend". Points, not cash back. I couldn't tell how you earn points. And is a 5% "point dividend" simply a 5% bonus on the points you earned?

It does say you can redeem points for various things including cash, but I couldn't determine what the exchange rate is.

I get skeptical when an offer mixes cash back and points. I won't be surprised if there's a cap on points earning so the 5% bonus on points cannot amount to that much.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by CDub » Mon Jan 29, 2018 8:36 am

prudent wrote:
Mon Jan 29, 2018 8:22 am
I wouldn't bet that the 5% is actually cash back. I notice they say the 1.5% on every purchase is cash back, the 3% on travel and restaurants is cash back, but the 5% on >$50K spending is a "point dividend". Points, not cash back. I couldn't tell how you earn points. And is a 5% "point dividend" simply a 5% bonus on the points you earned?

It does say you can redeem points for various things including cash, but I couldn't determine what the exchange rate is.

I get skeptical when an offer mixes cash back and points. I won't be surprised if there's a cap on points earning so the 5% bonus on points cannot amount to that much.
I don't think this is the case. It looks like a legit 5% bonus to me. OP said they called to confirm as well.

Details from their site:
https://www.commercebank.com/personal/c ... r-benefits
USE YOUR CARD, EARN POINTS:

Use your Commerce Bank World Elite Mastercard and earn points while making everyday purchases, enjoying a dinner out, or taking the trip of a lifetime.

1.5% CASH BACK1 for every dollar in Net Merchandise Purchases.
3% CASH BACK1 for every dollar in Net Merchandise Purchases made at travel and restaurant retailers2. Travel and restaurant retailers range from airlines and hotels to fast food and fine dining.
Receive a 5% ANNUAL POINT DIVIDEND3 when you make $50,000, or more, in Net Merchandise Purchases.
Receive UNLIMITED POINT EARNING! No cap exists on the points you can earn.
REDEEM YOUR POINTS FOR REWARDS:

Redeem your points for the rewards of your choice, whether it is Cash Back1, a gift card for your next shopping spree, or an airline ticket for your upcoming vacation.

Redeem reward points for CASH BACK1, GIFT CARDS, MERCHANDISE and more.
World Elite Mastercard Rewards Terms and Conditions

1A Cash Back redemption is applied as a statement credit. The statement credit will reduce your balance, but you are still required to make at least your minimum payment. Values for non-cash back redemption items such as merchandise, gift cards and travel may vary.

2Merchants self-select the category in which they would like their transaction items to be listed. Please note some merchants may be owned by other companies, therefore transactions may not be counted in the expected category.

3A 5% annual point dividend will be awarded each calendar year (January 1 through December 31) when you make $50,000.00, or more, in Net Merchandise Purchases. The amount of the dividend will equal 5% of your total Net Merchandise Purchases made during the calendar year. The Annual Point Dividend will be awarded within approximately 14 business days of the end of each calendar year.

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rocket354
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by rocket354 » Mon Jan 29, 2018 8:42 am

I would look into what 5% point dividend means. $50,000 spend = 2500 points = $25? I would definitely hope not, but I'd investigate. (Or you get points that you can only spend on their portal, and have very limited options.)

I can see a reason why it might be a legit $2500 value: they're trying to attract high-spenders, so are willing to take a loss on some people to get the business and build their brand. As well, they would get people who might aim for the $50k spend but not hit it.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by CDub » Mon Jan 29, 2018 9:08 am

rocket354 wrote:
Mon Jan 29, 2018 8:42 am
I would look into what 5% point dividend means. $50,000 spend = 2500 points = $25? I would definitely hope not, but I'd investigate. (Or you get points that you can only spend on their portal, and have very limited options.)

I can see a reason why it might be a legit $2500 value: they're trying to attract high-spenders, so are willing to take a loss on some people to get the business and build their brand. As well, they would get people who might aim for the $50k spend but not hit it.

That's a valid question. OP, please let us know if you're able to confirm whether the 5% dividend would be a $50,000*.05=$2500 OR $50,000 spend = 2500 points = $25

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Angelus359 » Mon Jan 29, 2018 9:10 am

Citibank double cash?
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SlowMovingInvestor
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by SlowMovingInvestor » Mon Jan 29, 2018 9:38 am

rocket354 wrote:
Mon Jan 29, 2018 8:42 am
I would look into what 5% point dividend means. $50,000 spend = 2500 points = $25? I would definitely hope not, but I'd investigate. (Or you get points that you can only spend on their portal, and have very limited options.)

I can see a reason why it might be a legit $2500 value: they're trying to attract high-spenders, so are willing to take a loss on some people to get the business and build their brand. As well, they would get people who might aim for the $50k spend but not hit it.
I'm very skeptical of an actual 6.5% return with no cap.

With no cap, that is an invitation for all types of manufactured spending. Even I can think of a very easy way to exploit this -- cut back Fed and State withholding to nearly 0, and make estimated payments quarterly. Add property taxes and other spending. Not too hard to get to 100K with that for someone with a good income. That would be a return of 4% at least tax-free + some interest benefit.

KT785
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by KT785 » Mon Jan 29, 2018 9:43 am

I'm still suspicious of the wording of that "5% point dividend" on the Commerce MasterCard . . .

My initial thought, upon seeing your post was to recommend the Alliant Visa Signature (3% in year one, 2.5% every year thereafter) or simply the Citi DoubleCash card.

However, I suppose the card(s) you want depend on what you want out of them; are you looking simply for cash-back or is travel important to you? You can get more value out of travel rewards than you can with cash-back. For travel, I'd look at the Chase trifecta: Chase Sapphire Reserve (3% on dining and travel), Chase Freedom (rotating 5% categories), and Chase Freedom unlimited (1.5% everywhere). All cards accumulate Chase Ultimate Rewards (UR) points which can be redeemed for cash at 1 cent per point OR travel at a higher rate . . . . if you have the Chase Sapphire Reserve, you can redeem UR points (accumulated from whichever card) for 1.5 cents per point (effectively 1.5% per point) through Chase's travel portal. You can get even greater value if you transfer them on a 1:1 basis to travel partners.

Depending on your circumstances, you might want to add the Chase Ink Preferred, a business card, for a Chase "quadfecta". :D

njdealguy
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by njdealguy » Mon Jan 29, 2018 9:49 am

Seems way to good to be true, if I theoretically spend $250k in a year, it would yield $16,250 in CB which is 6.5%? Id imagine the FT MS forum boards would be all over this card if were the case, like the unlimited 5% amex card (after first 6.5k in spending) that used to exist a few years ago and many people got abruptly shutdown by Amex on one day in 2014 I think.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Jags4186 » Mon Jan 29, 2018 10:07 am

...
(a) one point for each U.S. Dollar of Net Merchandise Purchases, and
(b) two points for each U.S. Dollar of Net Merchandise Purchases made at Travel and Restaurant retailers
...
(d) A 5% annual point dividend will be awarded each calendar year (January 1 through December 31) when you make $50,000.00, or more, in Net Merchandise Purchases. The amount of the dividend will equal 5% of your total Net Merchandise Purchases made during the calendar year. The annual point dividend will be awarded within approximately 14 business days of the end of each calendar year. Example: $50,000.00 in Net Merchandise Purchases made in one calendar year will equal a dividend of 2,500 points.

1 point = $0.015 or 1.5% cashback
2 points = $0.03 or 3% cashback
2500 points = $37.50 bonus for $50,000 in spend

You should open the Alliant Credit Union 3% first year card. You will get 3% cashback your first year. $125,000 * 3% cashback - 2.5% CC fee = $625.

Nate79
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Nate79 » Mon Jan 29, 2018 10:56 am

You could consider signing up for a new credit card that has a very high bonus for such a high spending amount (perhaps the business credit card bonus). Or more than one...

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Smorgasbord
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Smorgasbord » Mon Jan 29, 2018 11:00 am

madbrain wrote:
Mon Jan 29, 2018 6:34 am
Negotiate with your contractor to get a cash/check discount vs using credit. You can probably get at least 2% off and possibly more. If you get 3% off, it's probably a good deal.
That's probably the way I'd go as well. Credit card fees typically run over 2% for small businesses, so ask for a ~2.1% discount for paying in cash/check. If the contractor doesn't agree, fire them because not accepting that deal indicates a lack of business understanding.

RAchip
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by RAchip » Mon Jan 29, 2018 11:16 am

In addition to all the other comments, you must spend $50k on "Merchandise Purchases." I would bet this does not include paying your contractor.

SlowMovingInvestor
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by SlowMovingInvestor » Mon Jan 29, 2018 12:01 pm

Smorgasbord wrote:
Mon Jan 29, 2018 11:00 am
madbrain wrote:
Mon Jan 29, 2018 6:34 am
Negotiate with your contractor to get a cash/check discount vs using credit. You can probably get at least 2% off and possibly more. If you get 3% off, it's probably a good deal.
That's probably the way I'd go as well. Credit card fees typically run over 2% for small businesses, so ask for a ~2.1% discount for paying in cash/check. If the contractor doesn't agree, fire them because not accepting that deal indicates a lack of business understanding.
The OP said there was a contractor fee of 2.5% for CC over and above the charge, so there would be no non-credit card discount.
Last edited by SlowMovingInvestor on Mon Jan 29, 2018 2:06 pm, edited 1 time in total.

essbeer
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by essbeer » Mon Jan 29, 2018 12:56 pm

UBS has a Visa Infinite card with a 100k points bonus if you get a 250k line of credit with the card. You can pay the yearly fee with 35000 points. If you spend 50k you get a bonus $500 credit for any airline lounge membership. United allows you to pay the fee for it's top end MileagePlus card with your United lounge membership. And there is a 50k signup bonus for that card in addition.

So for a 50k spend:
165k net points ($1650 cash or up to $2970 in airfare)
Priority Pass Unlimited
$250 Airline credit fee
Global Entry for each Cardholder
United Club Full Membership
Free bags, Priority Access, etc.

A 2% back card would only give you $1000 back so it seems like a great deal. Potentially greater than 6% if you want the airfare and depending on how highly you value the perks.

Mr Chill
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Mr Chill » Mon Jan 29, 2018 3:00 pm

Thanks for everyone contributing. I called Commerce Bank again today and spoke with a different rep.

A few more datapoints:

1. If you have an existing credit card with them, you can't convert it to the World Elite MasterCard. You can, however, transfer some or all of your existing credit line on any other Commerce Bank card to the World Elite if you're approved for it. You can only make this credit line transfer if your other Commerce card is showing a zero balance. I currently have a $15k Visa line with them that is going completely unused. I'd imagine they factor total credit extended across all lines in their factoring.

2. The rep I spoke with on the phone worked in credit card services. She said the rewards rate is 1.5% on all purchases, no caps. The 5% bonus is rewarded at the end of the year, if you've made $50k or more in net purchases (charges, less any returns/merchant credits) during the Jan-Dec 2018 calendar year (not 12 months of when you opened the card, say June-to-June, so it makes sense to open this card at the beginning of the year).

3. They do not have any direct line to an underwriting department, which I requested, just to find out a bit more of what they're looking for before submitting an application. That being said, our FICO scores are 800+, so I'm pretty sure we stand a high chance of approval, and hopefully with a generous credit line. According to the rep I spoke with, you can also apply over the phone, if you can't make it into a branch. Commerce is a regional bank in the Midwest. I'm not sure if they'll process applications outside of their home area, forgot to ask that when on the phone. I used to live in Chicagoland and opened the Visa account there, but have since moved to California and they haven't given us any grief about it.

I'm going to call back with a few more questions as I think of them, want to double-check everything before submitting an application. I'll update this thread once I know more.

Still want to confirm from one or more reps:

1. Is it truly 6.5% net cash back?
2. What is the point ratio required to redeem to cash (assuming one doesn't want tons of gift cards to different merchants)?
3. Actual better documentation other than the short blurbs on the application page. I'd like to see the actual rewards Terms and Conditions.
4. Now that I've moved my residence from IL to CA, are there are going to be any issues submitting an application if I'm outside their service area?

Any other thoughts?

SlowMovingInvestor
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by SlowMovingInvestor » Mon Jan 29, 2018 3:25 pm

I think it's pretty clear from their reward terms

Example: $50,000.00 in Net Merchandise Purchases made in one calendar year will equal a
dividend of 2,500 points.


You don't get 6.5% in cash, but 5% extra points, so the actual benefit is that if you spend 50K in the 1% category, instead of 50K points, you get 52,500 points. For 50K in the 2% category, instead of 100K points, you get 105K.

Divide by 100 to get actual cash (I think its 100, but possibly the conversion rate is slightly better).

123
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by 123 » Mon Jan 29, 2018 3:58 pm

Mr Chill wrote:
Mon Jan 29, 2018 2:19 am
... Our contractor accepts credit cards...
An echo to a prior comment. Any contractor that accepts credit cards has automatically built a lot of negotiating overhead into their bid. It like buying a car with "free financing" but you pay full MSRP.
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KT785
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by KT785 » Mon Jan 29, 2018 5:06 pm

SlowMovingInvestor wrote:
Mon Jan 29, 2018 3:25 pm
I think it's pretty clear from their reward terms

Example: $50,000.00 in Net Merchandise Purchases made in one calendar year will equal a
dividend of 2,500 points.


You don't get 6.5% in cash, but 5% extra points, so the actual benefit is that if you spend 50K in the 1% category, instead of 50K points, you get 52,500 points. For 50K in the 2% category, instead of 100K points, you get 105K.

Divide by 100 to get actual cash (I think its 100, but possibly the conversion rate is slightly better).
Agree with your analysis. This card doesn't sound all that great when compared with a simple 2% or 3%/2.5% card . . . . if you only want one card for simplicity and only want cash back, I'd go for the Alliant Visa Signature. Alliant's underwriting is more involved than most institutions, so if that's a problem, I'd go for the Citi DoubleCash.

If you want travel rewards instead of cash (you can get more value this way), I'd look into sign-up bonuses with various lenders since you can hit a ton of minimum spend requirements and accumulate a boat-load of points/miles. . . start with Chase if you're interested and read up on their 5/24 rule before opening any accounts.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by TravelGeek » Mon Jan 29, 2018 8:43 pm

KT785 wrote:
Mon Jan 29, 2018 5:06 pm
If you want travel rewards instead of cash (you can get more value this way), I'd look into sign-up bonuses with various lenders since you can hit a ton of minimum spend requirements and accumulate a boat-load of points/miles. . . start with Chase if you're interested and read up on their 5/24 rule before opening any accounts.
Agreed. Churning through a series of cards is the best way to maximize the return, because you get easily $200-$1000 per card in points/miles with maybe $3-5k spend. Obviously plan carefully.

Chicago60
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Chicago60 » Mon Jan 29, 2018 8:57 pm

Agreed here as well.

Coato
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Coato » Tue Jan 30, 2018 1:41 pm

So there are a few hoops, but if you have the Schwab Amex Platinum and the Schwab Blue Business you get 2 MR per dollar spent and one MR is 1.25 cents when transferred to Schwab.

You can transfer this into a Roth IRA and not count it toward the $5500 Roth threshold because it isn't considered dollars but rewards. (Same mechanism as bonuses for moving accounts.)

So that is 2.5 cents per point cash back untaxed. You do pay $550 for the card so it may not be worth it to you.

Hard to know the value to you since the math depends on how long that money will compound tax free, but it makes a ton of sense for us.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by onourway » Tue Jan 30, 2018 2:09 pm

Coato wrote:
Tue Jan 30, 2018 1:41 pm
So there are a few hoops, but if you have the Schwab Amex Platinum and the Schwab Blue Business you get 2 MR per dollar spent and one MR is 1.25 cents when transferred to Schwab.

You can transfer this into a Roth IRA and not count it toward the $5500 Roth threshold because it isn't considered dollars but rewards. (Same mechanism as bonuses for moving accounts.)

So that is 2.5 cents per point cash back untaxed. You do pay $550 for the card so it may not be worth it to you.

Hard to know the value to you since the math depends on how long that money will compound tax free, but it makes a ton of sense for us.
Bonuses like these from credit cards are always untaxed. Moving it into a Roth is mental accounting. Your Roth limit is the same $5500 whether the money comes from bonuses or not.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Coato » Tue Jan 30, 2018 2:47 pm

It isn't mental accounting for us because it compounds tax free for 30 years.

And to be clear you can put in $5500 plus the MR rewards. It doesn't count against that $5500 per Schwab.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by onourway » Tue Jan 30, 2018 2:52 pm

Coato wrote:
Tue Jan 30, 2018 2:47 pm
It isn't mental accounting for us because it compounds tax free for 30 years.

And to be clear you can put in $5500 plus the MR rewards. It doesn't count against that $5500 per Schwab.
There is no way the IRS is allowing you to put in extra money into your IRA simply because they come in the form of bonus points. Please point me to the relevant section of the tax code that allows this.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Coato » Tue Jan 30, 2018 3:43 pm

It seems odd, but I chatted with Schwab and they verified. I would imagine it is for the same reason that you can transfer a Roth over to a Brokerage and that company can put money into your Roth as a bonus.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by onourway » Tue Jan 30, 2018 3:54 pm

Coato wrote:
Tue Jan 30, 2018 3:43 pm
It seems odd, but I chatted with Schwab and they verified. I would imagine it is for the same reason that you can transfer a Roth over to a Brokerage and that company can put money into your Roth as a bonus.
I believe you were either mis-informed or mis-understood the advice given. I have the Schwab card as well. With bonuses and 5x spending on business travel I could easily build several hundred thousand points in a year. Do you really think the IRS is going to let me put an extra $3-4k into my IRA simply because it came from credit card rewards?

If this were to be true it would be the biggest loop-hole in the churning market for years. The value of adding those points to an IRA tax-free would far outweigh any other way you could spend them.

fantasytensai
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by fantasytensai » Tue Jan 30, 2018 4:03 pm

onourway wrote:
Tue Jan 30, 2018 3:54 pm
Coato wrote:
Tue Jan 30, 2018 3:43 pm
It seems odd, but I chatted with Schwab and they verified. I would imagine it is for the same reason that you can transfer a Roth over to a Brokerage and that company can put money into your Roth as a bonus.
I believe you were either mis-informed or mis-understood the advice given. I have the Schwab card as well. With bonuses and 5x spending on business travel I could easily build several hundred thousand points in a year. Do you really think the IRS is going to let me put an extra $3-4k into my IRA simply because it came from credit card rewards?

If this were to be true it would be the biggest loop-hole in the churning market for years. The value of adding those points to an IRA tax-free would far outweigh any other way you could spend them.
Fellow Schwab Amex card holder here, though I keep my IRA in Vanguard. If this is true, it is a game changer. However, the only way to test it is to actually do it and wait and see if IRS reacts, and even then it may just be a false negative if IRS doesn't react. I would not call IRS to draw attention to this.

onourway
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by onourway » Tue Jan 30, 2018 4:07 pm

fantasytensai wrote:
Tue Jan 30, 2018 4:03 pm

Fellow Schwab Amex card holder here, though I keep my IRA in Vanguard. If this is true, it is a game changer. However, the only way to test it is to actually do it and wait and see if IRS reacts, and even then it may just be a false negative if IRS doesn't react. I would not call IRS to draw attention to this.
Agreed. Just because the IRS doesn't react to it doesn't make it legal. IRA contribution rules are clearly outlined in the tax code. That trumps any advice a customer service rep at your brokerage may give you.

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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by SlowMovingInvestor » Tue Jan 30, 2018 4:14 pm

Fidelity (which presumably has had tax lawyers look at this) says that cash rewards from it's Fidelity Visa card to an IRA are considered contributions.

If this loophole existed, people would be all over it, just as they would be all over a 6.5% card.

fantasytensai
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by fantasytensai » Tue Jan 30, 2018 4:15 pm

onourway wrote:
Tue Jan 30, 2018 4:07 pm
fantasytensai wrote:
Tue Jan 30, 2018 4:03 pm

Fellow Schwab Amex card holder here, though I keep my IRA in Vanguard. If this is true, it is a game changer. However, the only way to test it is to actually do it and wait and see if IRS reacts, and even then it may just be a false negative if IRS doesn't react. I would not call IRS to draw attention to this.
Agreed. Just because the IRS doesn't react to it doesn't make it legal. IRA contribution rules are clearly outlined in the tax code. That trumps any advice a customer service rep at your brokerage may give you.
Yea, sounds great but too risky. If there is one entity that I don't want to hide bones in my closet from, it's the IRS. They will dig it out eventually. 20 years of looking over my shoulder is probably a no thanks from me.

SlowMovingInvestor
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by SlowMovingInvestor » Tue Jan 30, 2018 4:18 pm

Coato wrote:
Tue Jan 30, 2018 3:43 pm
It seems odd, but I chatted with Schwab and they verified. I would imagine it is for the same reason that you can transfer a Roth over to a Brokerage and that company can put money into your Roth as a bonus.
That's a little different because the bonus is linked directly to the transfer of that IRA itself. But a firm will not allow you to transfer (say) 900K in a regular brokerage + 100K in an IRA, and then ask them to deposit the entire bonus for $1M transfer in the IRA.

essbeer
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by essbeer » Tue Jan 30, 2018 5:18 pm

onourway wrote:
Tue Jan 30, 2018 3:54 pm
Coato wrote:
Tue Jan 30, 2018 3:43 pm
It seems odd, but I chatted with Schwab and they verified. I would imagine it is for the same reason that you can transfer a Roth over to a Brokerage and that company can put money into your Roth as a bonus.
I believe you were either mis-informed or mis-understood the advice given. I have the Schwab card as well. With bonuses and 5x spending on business travel I could easily build several hundred thousand points in a year. Do you really think the IRS is going to let me put an extra $3-4k into my IRA simply because it came from credit card rewards?
Maybe they count it as a service fee rebate? Like paying your service fees with card points, so they rebate the fees back to the account. (I used to write an extra check for my fees, when my accounts were small enough for fees, so they wouldn't take the money out of the IRA) It's just money they were going to deduct anyway. Would have to be limited to actual fees I assume.

EnjoyIt
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by EnjoyIt » Tue Jan 30, 2018 6:26 pm

onourway wrote:
Tue Jan 30, 2018 2:09 pm
Coato wrote:
Tue Jan 30, 2018 1:41 pm
So there are a few hoops, but if you have the Schwab Amex Platinum and the Schwab Blue Business you get 2 MR per dollar spent and one MR is 1.25 cents when transferred to Schwab.

You can transfer this into a Roth IRA and not count it toward the $5500 Roth threshold because it isn't considered dollars but rewards. (Same mechanism as bonuses for moving accounts.)

So that is 2.5 cents per point cash back untaxed. You do pay $550 for the card so it may not be worth it to you.

Hard to know the value to you since the math depends on how long that money will compound tax free, but it makes a ton of sense for us.
Bonuses like these from credit cards are always untaxed. Moving it into a Roth is mental accounting. Your Roth limit is the same $5500 whether the money comes from bonuses or not.
Doesn't this in essence increase your Roth contributions for ther year? You deposit $5500 and then Schwab adds more money in thereafter. This can can then grow tax free for years to come.

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whodidntante
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by whodidntante » Tue Jan 30, 2018 6:42 pm

Probably what is happening that Schwab isn't reporting it as a contribution. I don't have the card myself, so I don't know for sure. That doesn't have any connection to whether the IRS would determine it is a contribution. And I definitely will not take tax advice from a Schwab rep without confirming it.

The cost of being wrong could be significant. You accumulate penalties every year the excessive contribution is left in.

onourway
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by onourway » Wed Jan 31, 2018 12:47 am

EnjoyIt wrote:
Tue Jan 30, 2018 6:26 pm

Doesn't this in essence increase your Roth contributions for ther year? You deposit $5500 and then Schwab adds more money in thereafter. This can can then grow tax free for years to come.
It’s no different than any other contribution. It’d be exactly the same if you took the points as cash and then made a deposit into your IRA. Limits still apply.

Coato
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Coato » Wed Jan 31, 2018 8:50 am

I didn't want to clutter the post by reasserting the same points, but I am still not sure why, from the IRS's point of view:

1. You can transfer 100k into Merrill Edge and they can put a $100 cash bonus into your Roth IRA that doesn't count against your $5500

2. You cannot redeem 80,000 Membership Rewards points (which I think was pointed out is tax free redemption/rebate or whatever) into a Roth IRA for $100 and it would count against your $5500

Logically the two seem the same to me. Either both should be OK, or not OK.

I am not arguing for any side here, I'm fairly agnostic about it. We don't really game cards that much so it would only ever be $500 or so per year for us.

I do think this is a grey area as I haven't seen anything that says it isn't or is right, just feelings that it cannot be right or demand for proof that it is all right.

Caveats:
1. The tax system isn't consistent or logical
2. This will ultimately be a personal decision based on intuition and not logic (just based on the way the argument has been framed so far, that's not a shot, there are many different ways to )
3. Everyone should probably consult a professional
4. I have had two positive experiences with the IRS so I think of them less fearfully than some
5. My personal belief is that we have an organic tax system and they tend to fix thing rather than pursue people in grey areas

SlowMovingInvestor
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by SlowMovingInvestor » Wed Jan 31, 2018 9:17 am

Coato wrote:
Wed Jan 31, 2018 8:50 am
I didn't want to clutter the post by reasserting the same points, but I am still not sure why, from the IRS's point of view:

1. You can transfer 100k into Merrill Edge and they can put a $100 cash bonus into your Roth IRA that doesn't count against your $5500

2. You cannot redeem 80,000 Membership Rewards points (which I think was pointed out is tax free redemption/rebate or whatever) into a Roth IRA for $100 and it would count against your $5500

Logically the two seem the same to me. Either both should be OK, or not OK.
1) is a reward that is directly related to your transfer of the IRA. It is probably no different than paying a higher rate of interest on money held in a money market fund in an IRA (indeed, firms could probably structure it that way too if they needed to). But a firm will not allow you to transfer 900K in normal + 100K in IRA to it, and get the $1M bonus in the IRA -- it'll be prorated, because the bonus is not linked solely to the funds in the IRA.

2) is related to an external action that has nothing to do with the IRA.

I can see a definite logical difference between the two. In fact, I see no real difference between case 2 and between simply getting cash in your brokerage account and putting it in the IRA.

I will say that Fidelity says this on it's web site about its Visa cash back rewards:

Here are some things to keep in mind if you want to deposit your Fidelity Rewards into these accounts:

All IRA and 529 plan contributions resulting from the card will be considered current-year contributions. The ability to contribute to an IRA or 529 college savings plan account is subject to IRS rules and specific program policies, including those on eligibility and annual and maximum contribution limits.


Presumably that's what their tax lawyers think.

onourway
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by onourway » Wed Jan 31, 2018 9:56 am

Transfer bonuses may sometimes be coded as 'interest earnings' not 'contributions'. This has the advantage of avoiding what would otherwise be taxable income if they pay it outside of the IRA. (and of course, increasing your effective IRA space).

This is what will make the difference with the Schwab bonus points. Can you have the points deposited directly into your IRA? If so, do they report it as earnings or a contribution?

If I'm wrong and they treat it as interest in an IRA I'll gladly eat my hat and open an IRA at Schwab and all my bonus points can go in there, effectively increasing my Roth space by a few grand a year. :P I'll probably get one of their Investor cards as well and put the 1.5% it earns there too!

Have you received your tax forms from Schwab for last year yet?

Coato
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Re: $100k+ Credit Card Spend Per Year: What card offers the best return?

Post by Coato » Wed Jan 31, 2018 10:34 am

Edit: Slowmovinginvestor, thank you for pulling that quote from Fidelity. I am interested in how they can have such a different view than Schwab.

I posted some thoughts which I deleted.

I will report back in a year whether it is a problem or not.

One more edit: Onourway, I don't have the card but I think that the Investor cards 1.5% cash back in the same way that the Citi DoubleCash is and probably is looked at differently than Membership Rewards Points. Maybe not though.

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