How I Saved My Kids From Student Loan Debt Using 529 Plans

Andrew Pentis

Updated on July 6, 2018

July 6, 2018March 13, 2020Big Money DecisionsFeatured, Save for College934Andrew PentisAmanda GarciaEmail

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Every month for more than 15 years, Lois Brayfield automatically contributed $100 to $200 to her sons’ 529 college savings plans.

By 2018, one of her sons pointed out that she’d done more than rack up $110,000 of 529 savings — she’d given them a leg on which to stand.

“He said, ‘Mom, I can’t thank you enough that I’m not strapped with student loans starting out in life; all my friends have ’em,'” Brayfield said. “That made it all worth it, that he recognized that.”

Getting her sons 529 accounts at birth

As one of six kids put through college by her parents, Brayfield set out to do the same for her two sons.

“I always wanted them to know that they could do whatever they wanted, not to worry about money,” she said. “Maybe it was a way to brainwash them [into going to school]. They had this [account] over there for college, so it was theirs to use. I didn’t want money to prevent them from going.”

In 1993, when Brayfield’s elder son Logan was about three months old, she opened her first 529 plan with Kansas-based Learning Quest. She’d learned about it on a college savings website and via her local TV station.

One of the main draws to the 529 plan for Brayfield and her then-husband was a $6,000 tax deduction awarded to married Kansas couples contributing to a 529. Later, according to Brayfield, the 529 plans became reciprocal, meaning her sons could use the money to attend a public or private school in any state.

Fifteen months later in 1995, Keegan was born, and Brayfield opened another 529 plan with Learning Quest.

In those days, Brayfield remembers how she was able to contribute a maximum $2,500 per year, post-tax (like a Roth IRA account) from her paycheck. Whenever she’d receive a bonus from work, she’d increase her contribution.

“It was not easy; it was a sacrifice,” said Brayfield, now the CEO and owner of advertising agency J.Schmid. “I was in my mid-30s, and that couple hundred dollars a month was a big deal.”

Once the money came out of her account, Brayfield learned how to live without it by budgeting what she had left.

Looking back, Brayfield wished she squeezed her family’s budget a little harder and contributed a little more each month to her sons’ accounts. But she didn’t yet have the salary to sock away all the cash they’d need for the rising costs of college.

Avoid this potential 529 plan pitfall

But her real regret about her sons’ 529 plans stems from her divorce about a decade ago.

“I know this sounds fatalistic, but I wouldn’t recommend opening a joint [529] with anyone because intentions can change,” she said.

Brayfield grew concerned that her ex-husband — the accounts’ co-owner — wouldn’t leave the funds as they were. Her 529 plan administrator set a safeguard forcing both parents to sign documents when one of them sought a withdrawal.

Brayfield added another layer of protection by creating two more Learning Quest accounts, this time as the sole owner. She then switched her monthly contributions to the new accounts to avoid potential arguments down the road.

How to make strategic withdrawals from 529 accounts

With four 529 plan accounts humming along as her sons entered their teens, Brayfield found that they didn’t need all $110,000 or so of savings.

Her younger son, Keegan (a 2016 graduate), earned the Missouri A+ Scholarship Program award, covering his tuition for his two-year program to become an aviation technician.

Instead, Brayfield made withdrawals from Keegan’s 529s for all his other college expenses. Brayfield withdrew more than $50,000 to cover his room and board, books, and other essentials. Brayfield also transferred $5,000 from her elder son Logan’s 529 plans to cover Keegan’s living costs.

“I kept track of every expense, charted it out at the end of the year,” she said.

Brayfield was able to do this because Learning Quest sent her a 1099-Q tax form, which reports withdrawals made during the year. It’s important to file because it tells the IRS that you used the funds for qualified education expenses.

Keegan’s school also sent a receipt listing all paid college expenses, such as tuition and fees. Then Brayfield forwarded everything to the IRS around tax time without a hitch.

Plus, the Brayfield family still has 529 funds to spare. Even though Logan took a hiatus from college, he still has untouched savings in a 529 plan earning interest until he decides to return to campus.

How you should start saving for college

Brayfield knows that 529 plans aren’t for everyone. While she liked a conservative, hands-off approach, you might prefer more investment flexibility, for example.

Similarly, you might struggle to find room in your budget to contribute $100 to $200 or more on a monthly basis for a decade or longer, especially if you have debt.

Still, whether you open a 529 plan or choose alternative ways to save for college, Brayfield’s advice is simple: Get going.

“Start now, don’t wait,” she said. “I like the fact that it’s separated [from your other investments] and you can watch it grow. [It] keeps you from dipping into it if you get the itch.”

By adding to your account balance without interruption, you’ll also reap the interest growth with which your bank can’t possibly compete. You and your child might even be able to avoid federal and private student loans altogether.

Finally, Brayfield recommended asking family members and friends for help if you’re struggling to make ends meet and save for the future simultaneously. Her parents, for example, contributed at least a few thousand dollars to their grandsons’ 529 plans over the years.

“Instead of lavish gifts, invest in 529 plans,” she said.

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