Across the mutual fund industry, the Vanguard Group is well-known for its low-cost approach to investing, and it has extended its positive reputation with the offering of 529 savings plans. Investors searching for 529 savings plans want a convenient way to save for higher education with minimal cost and the ease of opening an account online. The Vanguard 529 College Savings Plan offers 19 individual portfolios and three age-based portfolio models that can accommodate a variety of investment styles. As with other Vanguard mutual funds, this is a direct-sold product.
Why Investors Need to Consider 529 Plans
Investing in 529 savings plans allows for a tax-advantaged method to save for higher education. The owner 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.
529 Plans Are State-Sponsored
Each state offers its own 529 savings plan; the Vanguard 529 College Savings Plan is sponsored by the state of Nevada. The Vanguard Plan 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 also offers its mutual fund selection within the College Savings Iowa 529 Plan, which allows for a minimum investment of $25.
Features and Benefits of the Vanguard Plan
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.
Cost of the Vanguard Plan
Lower costs 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 a recent study conducted by Morningstar, direct-sold 529 plans are growing at a faster pace than advisor-sold plans.
The expense ratios for the Vanguard Plan are among the lowest in the industry. The age-based portfolio models have an expense ratio of 0.19%, and the individual portfolios range from 0.19 to 0.49%. There is an annual maintenance fee of $20 for accounts that have balances under $3,000.
Types of Portfolios Offered
Age-based portfolio models are popular within 529 plans. There are three age-based portfolio models offered in the Vanguard lineup: conservative age-based, moderate age-based and aggressive age-based. Within each of these three categories, there are several age brackets for the child starting from 0 to 5 years, 6 to 10 years, 11 to 15 years, 16 to 18 years and over 19 years. The portfolio management automatically adjusts the models as the child ages, moving to the less risky portfolio 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.
How Does Vanguard Compare to Other 529 Plans?
The Vanguard 529 plan was ranked third by Morningstar for the best 529 plans for 2015. This gold rating was achieved by having attractive, well-managed investment offerings with competitive fees that were expected to outperform their peers. The top-ranked 529 plan for 2015 was T. Rowe Price's Maryland College Investment Plan.
Vanguard has lowered its 529 plan expenses six times since it launched the plan in 2002. Morningstar has consistently given the Vanguard 529 plan a high ranking.