The Vanguard 529 College Savings Plan: A Review

The Vanguard Group is well-known across the mutual fund industry for its low-cost approach to investing. It has extended its positive reputation with the offering of its 529 savings plans. Investors searching for 529 savings plans want a convenient way to save for education with minimal cost and the ease of opening an account online. The Vanguard 529 College Savings Plan offers 32 individual portfolios and 12 target date portfolio models that can accommodate a variety of investment styles. As with other Vanguard mutual funds, this is a direct-sold product.

Read on to find out more about these plans and what Vanguard has to offer.

Key Takeaways

  • A 529 savings plan is a low-cost way for someone to save for the education of a child or grandchild.
  • The plan was originally designed to allow people to save for higher education.
  • Plan rules were expanded under the Tax Cuts and Jobs Act, the SECURE Act, and the SECURE 2.0 Act.
  • The Vanguard 529 College Savings Plan is sponsored by the state of Nevada and offers savers 12 target enrollment models.
  • Vanguard's is among the cheapest plans available on the market and offers a stellar lineup in its portfolio.

What Are 529 Plans?

A 529 plan is a savings tool designed to help investors save for the educational expenses of their children or grandchildren. All 529 plans, also known as qualified tuition plans, are tax-advantaged savings plans—just like individual retirement accounts (IRAs)—and are sponsored by various entities, including schools, states, and state agencies.

Every 529 plan covered the cost of post-secondary education in the past, but the Tax Cuts and Jobs Act (TCJA) expanded the usage of plans to include all forms of education, including K–12. Another bill, the Setting Every Community Up for Retirement Enhancement Act (SECURE)—signed into law on Dec. 20, 2019—further expanded the rules surrounding 529 plans. According to Section 302 of the Act, plan holders can also use funds to pay for qualified expenses relating to a beneficiary's apprenticeship program including tuition, other fees paid to the institution, and course material. Programs must be approved by the Department of Labor. Another change includes the ability to withdraw a maximum lifetime amount of $10,000 per student to pay down qualified education debt.

There are two different kinds of 529 plans: Prepaid tuition plans and education savings plans.

Prepaid Tuition Plans

Through this plan, account holders buy credits that can be applied to tuition and other fees at public or in-state colleges or universities. These are purchased at the current price. The costs for housing as well as elementary and secondary school tuition are not included in this plan. These plans are not guaranteed by the federal government but are sponsored by certain state governments and agencies.

Education Savings Plans

Account holders who open this kind of 529 plan can use the funds for any type of educational expense, including tuition, mandatory fees, as well as housing costs. The beneficiary of the plan may also be able to use the plan toward fees at any school, including those outside the United States. Savers can also use up to a maximum of $10,000 to pay for tuition at public, private, or religious elementary or secondary schools.

How 529 Plans Work

Investment options in all 529 plans vary based on the goals of the saver. The portfolio may be comprised of different vehicles including stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

The owner of a 529 savings plan creates an account for a beneficiary or student. The account earnings are free from federal tax as long as the funds are used for qualified education expenses, such as college tuition, books, and room and board. The owner of the account determines when the funds are distributed for higher education.

The plan is tax-deferred. This means earnings are deferred from both federal and state taxes. Most states also allow the saver to deduct 529 savings plans contributions on their state tax returns. Withdrawals for qualified educational expenses are tax-free.

529 Plans Are State-Sponsored

As mentioned above, 529 savings plans are generally sponsored by each state, including the Vanguard 529 College Savings Plan. This plan is sponsored by the state of Nevada, and it is administered by the Board of Trustees of the College Savings Plans of Nevada and chaired by the Nevada State Treasurer. Investors do not have to be residents of Nevada, nor does the beneficiary have to attend a Nevada school.

Vanguard's 529 plans require a minimum initial investment of $3,000, but that amount is lowered to $1,000 for Nevada residents, providing another incentive to invest in their state's plan. Additional contributions must be at least $50 per transaction.

Vanguard also offers its mutual fund selection within the College Savings Iowa 529 Plan, which allows for a minimum investment of $25. Vanguard also manages 529 plans for New York and Colorado. New York's plan has no minimum investment, and Colorado also keeps its initial minimum low at $25.

Vanguard's 529 Plans

Target enrollment portfolio models have replaced the popular age-based 529 plans. These plans structure each portfolio based on a mix of stocks, bonds, and short-term reserves that is appropriate for the amount of time available to invest. If account holders are starting late, with less time to invest, the target enrollment plan will take a more conservative approach to investing, focusing on a greater proportion of bonds rather than stocks. If the target enrollment is quite far off, the strategy is more aggressive in an attempt to spur growth.

There are 12 target enrollment portfolio models offered in the Vanguard lineup, ranging from commencement, which is for students nearing graduation and keeps 60% of the balance in short-term reserves, to enrollment year 2040/2041, which features 95% of the balance in stocks.

Vanguard offers 12 target enrollment portfolios based on when your child will enter higher education. Each plan has a different ratio of stocks versus bonds versus cash based on how much time there is to invest.

Each target enrollment portfolio automatically adjusts the models as the child ages, moving to the less risky portfolio—comprised of stocks, bonds, and short-term reserves—as the child nears college age.

The individual portfolios range from a conservative money market to stock portfolios that can be used to customize the investor's own strategy.

Features and Benefits

The Vanguard 529 plan is a low-cost, direct-sold investment with a wide selection of well-managed portfolios. The convenience of opening and maintaining an account online without paying a sales commission keeps a simple process for do-it-yourself investors. The Vanguard 529 plan is highly rated among its competitors.


Lower-cost plans appeal to investors, and Vanguard makes use of its index mutual fund offerings to keep expenses down. There is no enrollment fee for opening a Vanguard 529 College Savings Plan, and there are no commissions or transfer fees. According to Morningstar, Vanguard's 529 plan is a top-rated choice, earning a silver rating.

The expense ratios for the Vanguard Plan are among the lowest in the industry. The target enrollment portfolio models have an expense ratio of 0.14%, and the individual portfolios range from 0.12% to 0.42%.

Vanguard vs. Other 529 Plans

The Vanguard 529 plan has consistently ranked among the top plans as rated by Morningstar and did receive gold rankings every year since 2012. The group did recently drop the plan to silver ranking. The reason? Morningstar noted that the plan's fees are still fairly cheap—below average, in fact—but it hasn't been able to keep up to date with the industry and its competitors, which have consistently tried to keep investment fees low.

The fund's saving grace is its lineup. Morningstar highly recommends the plan for its investment strategy, which is made up of underlying Vanguard index funds. It also recognizes the fund's ability to transition holdings from stocks to bonds through its target enrollment construction.

Can I Invest Directly in a Vanguard 529 Plan?

Yes, you may open a 529 for your child, relative, or yourself directly on Vanguard's website.

How Much Do I Need to Start Investing in a Vanguard 529 Plan?

If you are investing directly with Vanguard, you will need a minimum initial investment of $3,000. If you're a resident of Nevada, the minimum is only $1,000. Vanguard also administers some other state plans, such as Iowa, New York, and Colorado, all of which have much lower initial investment requirements.

Is There a Limit to How Much I Can Invest in a Vanguard 529 Plan?

Yes. There is a $500,000 contribution limit for Vanguard 529 plans. However, once that amount is reached, the principle can grow beyond that limit.

The Bottom Line

Saving for educational expenses can be daunting, but 529 plans offer tax advantages and plans that maximize the time you have to save. Vanguard's 529 plans offer low expenses and decades of experience, making it a solid choice for college savings.

Article Sources
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  2. Vanguard. "Vanguard 529 Portfolios."

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  4. Internal Revenue Service. "Topic No. 313 Qualified Tuition Programs."

  5. Internal Revenue Service. "Tax Benefits for Education: Information Center."

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