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Best Vanguard Fund for College Savings

written by: Mike White•edited by: Donna Cosmato•updated: 5/19/2011

What is the best Vanguard Fund for college savings, if one wants to save for college for a loved one? Here we describe various funds for your convenience. You may be able to decide by just knowing what's available. If you still need help, Vanguard's own tools may help you decide.

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    How Can You Choose the Best Fund for College Saving?

    How does one know what is the best Vanguard fund for college savings? What types of funds are available? There are ways of determining which fund might be best for you, and we will equip you with the tools to make an informed decision. Various types of Vanguard Funds will be described, and while the 529 may be the best known, it is not the only one.

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    To Choose the Best Fund You Have to Know What Funds are Available

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    To be able to choose which Vanguard Fund is the best for your situation, you have to know what funds are available, so you can compare them.

    The best known Vanguard Fund for saving for college, but not the only one, is the 529. We'll describe it, along with some of the others, in a separate paragraph.

    The Vanguard Fund allows anyone--including friends, parents, grandparents and others--to contribute up to $65,000 in a single year (the normal amount that can be given as a gift without taxes is $13,000) toward the college education of a loved one. To be able to contribute, however, one has to contribute for four additional years. The funds grow free from Federal taxes, but as for state taxes, rules vary from state to state. Withdrawals may be made for higher education purposes, without owing any Federal taxes, and in many cases without owing state taxes. One can give until the amount reaches $200,000 to $300,000, depending on whatever the limit is in a particular state.

    More information about 529 plans may be found in the article, Saving for College: an Overview of 529 College Savings Plans.

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    Other Vanguard Funds

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    There are other Vanguard Funds that can be used for college savings, and they will be described. Just knowing the different types of plans might help you decide, which is best for you. This article, however, shows you how to use tools on the Vanguard website to help you reach a decision as to which fund is best for you.

    A Vanguard Educational Savings Account allows you to save up to $2,000 per year for the education of someone you care about. The account may be, but does not have to be, used for college. It can be used for any educational expenses of someone at any age. Control is always in the hands of the one who opened the account. Such a fund will have very little impact on any financial aid a student may receive. The funds are not state tax deductible, but do grow without any taxes until you need them. Withdrawals used for purposes other than education are taxed at the usual rate for the individual taxpayer, plus a ten percent penalty.

    A Vanguard UGMA/UTMA account is a custodial account under the Uniform Gift to Minors Act or the Uniform Transfers to Minors Act to save for a minor, either for education, or other purposes that are not typically parental responsibility, such as food, clothing or shelter. One can contribute any amount for the fund, but amounts more than $13,000 for an individual, or $26,000 for a married couple that files jointly, will be subject to Federal taxes. Anyone can contribute to the fund, and there is no penalty if the funds are not used for college. There is a significant impact on possible Federal aid for a college student.

    An article that not only describes the Vanguard Fund, but gives tips for saving for college no matter whether you use a a Vanguard Fund or another means is the article, The Best Way to Save for College.

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    Vanguard's Own Tool to Help You Decide Which College Savings Fund is Best for You

    Just knowing the types of Vanguard funds and their differences may help you decide which educational savings fund is best for you. If it is not, Vanguard has its own tool to help people choose the best fund for them. It may be found at

    According the website, the answers you give will be used in helping you. The answers are given based on current tax laws, which could change. The company does not promise whichever fund you choose will help meet your needs and mentions that all funds carry risks. Let's go through the tool step-by-step.

    1. In using the tool, you are asked to which state you pay taxes, because many tax laws vary from state to state, even though Federal laws may be uniform.
    2. Next, you are asked whether it is important to you to control the educational savings fund, or it it matters if the person the money is being saved for controls it.
    3. This is followed by a question about whether it is important for you to contribute more than $2,000 a year or not.
    4. The next question is whether it is important to you that the money grows tax free, even if you have minimal control over it.
    5. You will then be asked if it is important to you that you avoid tax penalties for early withdrawals from whatever account you choose or if the fund is used for something other than education.
    6. Finally, you are asked if it is important to you if the money you save is counted against financial aid for the person you are saving.

    After answering these questions, you receive the answer as to the Vanguard educational savings fund, or other Vanguard fund that is not an educational fund but may be used for education, which is the closest match to your criteria.

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    There Are a Lot of Ways to Save For College

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    Before reading this article you may have wondered what is the best Vanguard fund for college savings? You now see there are a variety of funds you could use. There are also tools to help you choose which one is the best for you. One article that may be helpful in helping you determine how much money you may need to save for college for your loved one is the article, Determining the Average Cost of College Credits.

    Sources: Which College Savings Option is Best for Me?

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