Your Guide to Vanguard 529 Plans

As one of the largest investment managers in the U.S., with over $8 trillion in assets under management and more than 50 million investors, Vanguard is well-known and trusted among individual investors. While many individuals are familiar with Vanguard for their retirement accounts or mutual funds, did you know they also provide 529 plans?  

Here’s a guide to understanding Vanguard’s 529 plan offerings.

Which 529 Plans Does Vanguard Offer?

Vanguard serves as program manager, program distributor, or investment manager for seven 529 plans, including The Vanguard 529 College Savings Plan. All are direct-sold plans that you can open yourself online, and all are available to residents of any state.

State-specific tax benefits

These 529 college savings programs are available to residents of any state. But you may be eligible for a state tax deduction for enrolling in your home state’s plan. 

Each state has specific limits and rules on how much of a 529 contribution is deductible for tax purposes each year. Below is a table noting the deduction limits and examples of how much you can save in taxes. 

The potential tax savings below are based on a married couple filing jointly, with an income of $100,000 annually, who contribute $200 per month ($2,400 annually) this year:

Some states offer additional tax benefits for contributions. For example, Arkansas allows you to carry forward contributions over the annual limit for up to four tax years. This allows you to spread your tax benefits over time while contributing when it makes sense for you. Arkansas also offers employer tax deductions for matching employee contributions to 529 plans of up to $500 per employee. 

Iowa allows taxpayers to attribute contributions to the prior year’s tax return as long as they are made before the filing deadline. This allows you to take full advantage of any tax deductions (up to the specified limit) for your contributions to the plan.

The states of Colorado and Nevada provide tax credits to employers for matching 529 contributions of up to $500 per employee. So, ask your employer if they have a 529 matching program and maximize your college savings.

Note that another 33 states have 529 plans that offer Vanguard funds. So if you don’t reside in one of the seven states above, but want to invest your college savings in Vanguard funds, check to see what your state offers. 

Why choose Vanguard’s 529 plans?

Vanguard is the investment market leader in low-cost funds with a large selection, and their 529 plans are no different. Vanguard-managed 529 plans may also appeal to existing Vanguard customers or investors. Among the benefits of these plans are the variety of investment options offered, and Vanguard’s history of innovation and growth.

Existing Customers

Selecting a 529 plan and choosing an investment option can be a difficult decision for some parents. If you have investments with Vanguard, you may have built trust or confidence in their investment products and enjoy their low-fee approach. In this case, going with a 529 plan that offers Vanguard funds may help you make your decision more easily and confidently. 

The Vanguard 529 College Savings Plan can be opened directly on the Vanguard website, but other plans offering Vanguard funds will need to be opened on the respective plan’s website.  

Age-Based and Static Portfolio Options

When you open a 529 plan, you’ll need to decide how your contributions will be invested. Vanguard manages or distributes seven plans, each offering age-based and static portfolio options.

With age-based or year-of-enrollment portfolios, you select a portfolio based on your child’s age or expected year of college enrollment. Each plan’s age-based option is slightly different, but all adjust the level of risk based on the number of years until your beneficiary begins college and starts making tax-free withdrawals from the fund.

Higher ages correspond to more conservative investments within your chosen risk tolerance. The age-based portfolios offered by the seven 529 plans that Vanguard is involved in managing all contain underlying mutual funds and other investments managed by Vanguard. 

If you want a more hands-on approach to investing for college, you may prefer static investment options. These are portfolios designed to achieve a specific investment objective, such as Aggressive Growth, Conservative Growth, Income, etc.

In addition, most plans also offer individual investment options. These are portfolios invested in a single mutual fund or other type of investment. You can select one or more of these static and individual options to create your own portfolio.

Should you choose to go with a static or individual investment option, you’ll want to track the performance of your portfolio and you may want to adjust asset allocations to reduce risk as your beneficiary approaches college age. Keep in mind that you can only make two investment changes per year to a 529 plan.

Low-Fee Options

Vanguard is known for its low-cost investment model. While most Vanguard direct-sold 529 plans have regular account maintenance fees, it’s possible to waive them. For example, the $20 annual fee for Arkansas, Colorado, and Hawaii is waived for in-state residents. You can waive the $10 fee for Pennsylvania account maintenance if you elect for electronic document delivery.

Overall expense ratios can vary by plan and the selected portfolio. Within The Vanguard 529 College Savings Plan, for example, expense ratios for the age-based and static portfolio options are 0.14% (0.15% for the Vanguard Income Portfolio), and for the individual portfolios they range from 0.12% to 0.43%. All portfolios offered by New York’s 529 direct-sold plan have an expense ratio of 0.12%. 

Innovation, Growth and Success

Founded in 1975, Vanguard is younger than other major investment firms, but in a relatively short time they’ve grown to become one of the largest asset managers in the U.S.

The company was the first to introduce an index mutual fund for individual investors and further helped investors save money when they introduced commission-free trading on many of their ETFs in 2018. Vanguard also operates under a unique investor-owned ownership structure. This structure keeps the company focused on meeting the needs of its investors. Vanguard’s focus on innovation and helping investors maximize their earnings has earned them many loyal fans. 

The company’s success demonstrates stability, which is an important factor when selecting a 529 plan. In addition, Saving For College has rated the plans managed by Vanguard well over the years. These annual ratings are based on numerous objective criteria that we collect and analyze, including investment performance and plan features.

Are There Any Downsides to Choosing a Vanguard 529 Plan?

Funds from a 529 plan managed by Vanguard can be used at colleges nationwide. However, if you do not reside in one of the states that offers a Vanguard-managed plan, you may be giving up a state tax benefit if you choose to open an out-of-state plan. Y

ou should see whether your state offers a state income tax deduction or credit and if it can be used with an out-of-state 529 plan. Over 30 states offer a tax benefit for 529 plan contributions; nine of these states provide this benefit for contributions to both in-state and out-of-state 529 plans.

Opening your home state’s plan may also have other benefits, so do your research. Remember that Vanguard funds are available in plans offered by 33 other states, so you may still be able to invest in a Vanguard fund even if you do not open a plan managed by Vanguard.

The downsides of choosing a Vanguard 529 college savings plan are minimal, as there is no enrollment fee, and maximum contributions are high (at least $305,000 and up to more than $500,000 per beneficiary). However, some plans require a minimum initial investment.

Additionally, although many low-fee options are available, fees will vary based on the chosen plan and investment portfolio. Vanguard-managed 529 plans have expense ratios ranging from 0.12% to 0.66%, depending on the investment options you choose. 

Lastly, remember that all seven of these Vanguard 529 plans are direct-sold, so you’ll need to do your own research to choose your investment options. If you want help making investment decisions, consider selecting an advisor-sold plan instead, as this will provide access to a personalized investment manager. Note that some advisor-sold plans offer Vanguard funds as well.

How to Open a Vanguard 529 Plan Account

Ready to take action for your educational savings goals? Follow these step-by-step instructions to start saving for your child’s education with Vanguard. 

Steps to open an account

1. Research and Select a Plan: Explore the different 529 plans managed by Vanguard and consider your own state’s 529 plan as well. 
2. Open an Account: Click Enroll Now on your plan of choice from Saving for College or go directly to the plan’s website. You will need your and the beneficiary’s personal information (name, birth date, address, social security number, etc.). You’ll also need your bank account information if you plan to make your initial contribution to the plan via electronic funds transfer. 
3. Choose Your Investments: Part of the enrollment process will be choosing your investment strategy. 
4. Fund Your Account: Setting up automatic contributions all make saving for college and meeting your investment goals easier. 
5. Manage Your Investments: Life happens. Use the tools and resources offered by your plan to monitor your account and make necessary changes to your investment strategy or beneficiary information. 

Does it Make Sense to Open a Vanguard 529 Plan?

Vanguard-managed 529 plans offer a combination of tax advantages, a wide range of investment options, and low fees. Whether you are a current Vanguard customer or new to their services, Vanguard’s 529 plans are a solid candidate to help you meet your college savings goals. Use this guide and your own research to determine if Vanguard is right for your family’s higher education expenses, then enroll today.