Welcome to Virginia 529 Simplified!
This page sorts through the unnecessary wordiness of the VA 529 literature to help you make the best college savings decisions for your children. It also explains the various investments and links to independent sources for investment performance.
Update 02/21/2017: Virginia 529 announced a new look and feel to the homepage and new logo. Plus new names for the Virginia529 prePAID, now Prepaid529, and Virginia529 inVEST, now Invest529.
So far, the Invest529 user interface, the terrible one I rant about below, hasn’t changed. HOWEVER, I logged in and there’s a message:
New look coming soon…Your secure online account is getting an update to match Virginia529.com. Log in on or after February 27 to see the enhancements.
Could it be? Are they finally responding to our long-standing gripe with their antiquated website? We’ll see in the next few days!
Update 12/28/2016: Page updates were made to account for announcements on December 27th and 28th. Click here to read the announcements on the “What’s New” page.
Two new Invest529 Portfolios were added for January 1st, 2017. The 2036 Fund, and the FDIC-Insured Portfolio.
Also, all of the age-based evolving portfolios are have undergone name changes to more clearly indicate their investment time frame. For once, they’ve made the plan simpler to understand!
Please also read my related blog posts The Best 529 Plan for My Daughter is Not as Perfect as She Is, and How Our Family Is Saving For College.
Note: If you see any inaccuracies or link updates that need to be made, please let me know by contacting me or stating in the comments below. Certain links to the virginia529.com website have been known to change, but the programs themselves have remained mostly the same for the past few years.
After my first child was born, I tirelessly evaluated a range of options for a tax-advantaged college savings program. I looked at various state’s plans, and dug deep into the Virginia 529 plans. Since residents of Virginia can deduct contributions they make to the Virginia 529 plan (and cannot deduct contributions if participating in other state plans), VA 529 is the best option for residents.
Despite being the best option, and being ranked as a top plan nationally, it still has plenty of flaws.
For starters, the literature on the website is unnecessary wordy, especially for the Invest529 program. As money nerd doing my own research, I knew others must struggle to interpret all the plan variations. At the same time, I started the Retire Before Dad finance blog which gave me a platform to share my findings.
I’m a parent and plan participant. Read more about me here.
I hope you find this information helpful. This page has become the leading independent resource for understanding the Virginia 529 plan. It’s also a place to advocate for improvements to the plan. Parents want:
- Affordable in-state college opportunities
- Excellent tax benefits for investing in the Virginia 529
- Diverse, low-cost investment options
- Impeccable plan transparency
- A major overhaul of the website user interface for Invest529 participants (needs major improvements), or simply abandon the in-house administration and outsource it to Vanguard.
- Modern account features (i.e. one account that holds all funds, not a separate accounts for each)
- Simplicity (needs improvement)
- Ease of payment to in-state or out-of-state colleges
Below I list the four Virginia 529 plans and give a quick summary. Then I’ll elaborate on each one. When plan updates are announced, I do my best to update the sections.
Virginia 529 Basics
According to the Virginia 529 website, it is the nation’s largest 529 program with more than $54 billion in assets. Virginia residents who participant in the plan can contribute up to $4,000 dollars per each prepaid tuition account or savings trust account, which is tax deductible from their Virginia state return, but not a federal tax return.
So if you contribute $4,000, and live in Virginia, you pay taxes on $4,000 less than you would had if you did not contribute.
For example if you have more than $17,000 of taxable income (if you are reading this you, you probably do), and you contribute $4,000 to a Virginia 529 program account, you do not pay taxes on that $4,000.
The savings is 5.75% (the state income tax rate) of $4,000, or $230 on your Virginia tax return. That’s a 5.75% return on the $4,000 investment.
That $4,000 is contributed to one of the four Virginia 529 programs. The money grows tax free, meaning you do not pay taxes on any gains.
Tax Deductibility Resource
The tax deductibility of the Virginia 529 law is very confusing and information on the internet varies. I found this link to a Bogelheads forum which helps explain it and adds the actual text from the law and a ruling on the law.
From what I’ve read, you can take a $4,000 tax deduction for each account per owner, per beneficiary. So if you have two children, and you and your wife each open one account for each child, that’s four accounts. You can contribute $4,000 to each account equaling $16,000, and take that amount in deductions per year.
Furthermore, when you invest in a Virginia 529 Invest529 fund, each purchased fund is opened in a separate “savings trust account”. $4,000 for each of those accounts can then be deductible for each child per account owner. Any amount over $4,000 in an account can be carried over the to next year. Based on the forum linked above, it appears you can deduct an almost unlimited amount if you open separate accounts by each owner for each child, and use the Virginia 529 Invest529 selection of funds.
From what it seems, the law was written with the intent to limit deductions to $4,000 to each child. However, the way they built the information technology was to create a separate “account” for each fund invested in. Either this was a mistake, or the loophole was put in place to favor those who can invest amounts much higher than $4,000 per year.
Of course, don’t rely on tax advice from an internet forum or my blog. Consult the written law directly yourself or contact a Virginia based tax adviser.
The Virginia 529 Plans
Prepaid529 (formerly Virginia 529 Prepaid) – A plan to prepay college tuition today that can be used when your child is college ready.
Invest529 (formerly Virginia 529 inVest) – The Invest529 program is a top ranked national program but still has limited and convoluted investment options. This is the plan I use for my three children, reluctantly, due to the lack of diverse investment options and HORRIBLE website user interface.
This program is quite confusing. I try to simplify it as much as I can below. While it is confusing, some of the investment choices are excellent. You just need to understand the difference between age-based, passively managed, and actively managed. The terminology used by the program, such as “Aggressive Growth”, leaves out an important detail… The name of the fund. I try to clarify this.
CollegeAmerica – This is another top-ranked plan. It’s in partnership with American Funds, a notoriously high-fee managed mutual fund company. You must open an account through a financial adviser to enroll (and you’ll pay adviser fees too).
CollegeWealth – This is a basic high-yield FDIC insured savings account with a bank. As of January 1st, 2017, an FDIC-insured portfolio option is added to the Invest529 program, rendering the CollegeWealth program unnecessary, in my opinion.
Let’s go over each with a bit more detail.
This program allows parents to prepay college tuition and fees at a given price today. When the child is college-aged, the program pays out money for the child’s education. The child may go to a public or private Virginia college, and money can also be paid to out-of-state schools. However, the amount paid out varies between Virginia public, private, and out-of-state.
TRANSLATION: the best deal is going to an in-state public college.
There is a limited enrollment period during the year and the account owner must be a resident of Virginia at the time of the account opening. For more detail on this plan and the others, I suggest going directly to the Program Description PDF on their website. Click here to find a link to the Program Description for the Virginia Prepaid529. The plan is meant to allow a parent to save money by prepaying tuition at today’s college rates, and the student’s college would be paid for at the time they are ready to attend at age 18.
I did not choose this option because first and foremost, the right college for my children may not be in the state of Virginia. The ability to transfer the amount paid to another state 18 years from my son’s birth is likely uncertain. According to page 10 of the Program Description, “Some Out-of-State Institutions will not accept payments directly from a third party such as prePAID” requiring the account owner to transfer the money to another account.
This is a headache indicator.
Additionally, the way this program is calculated today could change and you never know how long it will last. There is also a limited enrollment period, because parents of young kids don’t have enough annoyances. If your child is destined to go to some in-state public college or university, maybe this program is for you. But the uncertainty and questionable choices for out-of-state colleges make this a plan I’ve stayed away from.
The Virginia Invest529 program is administered by the people at Virginia 529. If you choose this option, you create an account on the www.virginia529.com website and choose your investment strategy. My three kid’s Virginia 529 accounts are in the inVest program.
I chose this plan because it seemed like the most diverse and low-cost option. The plan offers an OK number of options for investments. The types of investments are broken into three types; Age-based Portfolios, Passively-Managed Static Portfolios, and Actively-Managed Static Portfolios.
These were previously know as “evolving” and “non-evolving”, confusing things. Those references are gone now. But the wordiness remains.
You can find a link to the Invest529 Program Description here.
As of January 1st, 2017, the age-based portfolios have changed names. The table below lists the new names (which represent the year your kids will start college), the old names (confusing and meaningless), recommended age, and the 2017 asset allocation profiles.
|New Name||Old Name||For Ages||Allocation as of Jan 2017|
|2036 Portfolio||None||0||80% Equity/20% Fixed Income|
|2033 Portfolio||Rappahannock||0–3||73.3% Equity/26.7% Fixed Income|
|2030 Portfolio||James River||4–6||63.4% Equity/36.6% Fixed Income|
|2027 Portfolio||Eastern Shore||7–9||53.4% Equity/46.6% Fixed Income|
|2024 Portfolio||Alleghany||10–12||43.3% Equity/56.7% Fixed Income|
|2021 Portfolio||Chesapeake||13–15||30% Equity/70% Fixed Income|
|2018 Portfolio||Potomac||16–18||8.3% Equity/91.7% Fixed Income|
|2015 Portfolio||Southside||Closed to new investors||100% Stable Value|
|Stable Value||Piedmont||18+||100% Stable Value|
The age-based portfolios are meant to be “buy it and forget it”. In other words, if you contribute to one of them, the fund will change over time so you will not need to make adjustments. So if you start buying into a fund when your child is a newborn, the asset allocation of the fund will be more aggressively geared toward stocks. 80% to stocks, and 20% to bonds.
As the portfolio ages, along with your child, the asset allocation changes to a greater percentage of fixed income, and less stocks, until the child is college age, at which point the fund would be 100% invested in safer, fixed investments.
All of the age-based portfolios are made up of just eleven underlying investments (and they haven’t changed at least since 2012). You can find the list of underlying investments in the Program Description by searching for “Underlying Investments of the age-based Portfolios”. According to the program description, there is a description of the “Investment Managers”, the people who select the underlying investments. It is a little vague, so interpret as you will:
“VA529’s Board is responsible for long-term Asset Allocation guidelines, Asset Allocation strategy, and the investment manager selection policy. Upon the Board’s direction or at the direction of VA529’s Chief Executive Officer, the Board’s Investment Advisory Committee is responsible for, among other things, Virginia529 Invest529 — Program Description interviewing, selecting and/or terminating investment managers, including Mutual Funds, that professionally manage the moneys within Invest529. In carrying out these duties, the Board and the Investment Advisory Committee consult with the Board’s investment consultant.”
I could find no clear listing of the members of the Investment Advisory Committee, but it seems to be staffed by members of the Board of Directors. This should be stated more clearly on the website but is not, or I can’t find it. If the Virginia 529 people happen to be reading this, please point me to the correct location of this link, or add it to your website and I will add it here.
Below is a list of the Underlying Investments for all of the nine age-based portfolios. Of all of the thousands of mutual funds, index funds, and ETFs in the country, they chose only 11 Underlying Investments.
I should add, as of 12/28/16, these haven’t changed at all since I opened the account for my first child in February 2012. The funds with a symbol are actual mutual fund investments. Click the link to see an independent summary of the investment on Yahoo Finance. The funds listed as N/A are not publicly available. As listed they are specific investment accounts for the VA Invest529.
It would be nice to have more information on these funds for transparency sake, but I cannot find it.
|Investment Manager||Asset Class||Fund or Separate Account||Symbol|
|Aberdeen Asset Management||Emerging Markets Equity||Aberdeen Emerging Market Fund||ABEMX|
|Capital Research and Mgt Co.||International Equity||American Funds EuroPacific Growth Fund||RERGX|
|DFA Investment Dimensions Group Inc||Emerging Markets Equity||DFA Emerging Markets Core Equity Portfolio||DFCEX **|
|Invesco Advisers, Inc.||Stable Value||Separate investment account for Invest529||N/A*|
|Morgan Stanley||Global Real Estate||Morgan Stanley Institutional Global Real Estate Fund||MRLAX|
|Prudential Investment Mgt, Inc.||High Yield Bonds||Separate investment account for Invest529||N/A*|
|Rothschild Asset Management Inc.||Small-/Mid-Cap Domestic Equity||Separate investment account for Invest529||N/A*|
|StoneHarbor Investment Partners||Emerging Markets Debt||StoneHarbor Emerging Market Debt Fund||SHMDX|
|Templeton Institutional Funds, Inc.||International Equity||Templeton Foreign Equity Series||TFEQX|
|The Vanguard Group, Inc.||Market Fixed Income||Total Bond Market Index Fund||VBMPX|
|The Vanguard Group, Inc.||Small-Cap Domestic Equity||Small-Cap Index Fund||VSCIX|
|The Vanguard Group, Inc.||Large-Cap Domestic Equity||Institutional Index Fund||VINIX|
* The Virginia 529 provides no details on these investments. The lack of transparency of these investments may be unacceptable to some investors. Invest at your own risk.
** New as of March 28th, 2016. Virginia529 will reallocate approximately half of the funds currently invested in the Aberdeen Emerging Market Equity Fund to the DFA Emerging Markets Core Equity Portfolio. New monies invested in the impacted Invest529 portfolios will be allocated to the DFA Emerging Markets Core Equity Portfolio beginning April 1, 2016.
If you invest in one of the age-based portfolios, a separate account is opened for the beneficiary (for your kid, with you as the owner). It’s implied by the Virginia 529 that the age-based portfolio investment options the only fund to need to buy to keep things simple and risk-appropriate. They will administer the investments, and you can sit tight for the next 18 years and your money is safe. You chose the portfolio based on your child’s age.
These are all fairly conservative investments, as they should be. But you need to decide if they are allocated to fit your risk tolerance. I originally decided to put half of my son’s savings into an age-based portfolio for my son. However, later I moved it out because 20% in bonds was too conservative for me. I’ve since put most of the other contributions towards the total market stock fund, and will continue to do so until he is 10 or 12-years-old.
Passively-Managed Static Portfolios (Formerly Non-Evolving Portfolios)
Update 12/28/2016: The FDIC-Insured Fund was added to Passively-Managed Static Portfolio options. This fund is a money market fund. This does the same thing as the CollegeWealth, interest on cash.
“Passively-Managed Static Portfolios” is a fancy name for index mutual funds. They have been chosen by the Board of Directors/Investment Advisory Board with the help of Mercer Investment Consulting. Participants of the Virginia 529 Invest529 program are given eight index funds to choose from. I have added Yahoo Finance links to each investment so you can get an independent look at the underlying holdings, performances, and profiles.
These are the best investment choices for most people. They are low-fee Vanguard funds. Investors have been flocking to Vanguard over the past decades.
These low-fee index funds are what make the Virginia 529 plan a top plan on a national level.
I almost exclusively invest in these funds now and would recommend them to a family member (like my kids).
Index fund investing will match market performance. Most actively managed funds do not over long investment periods.
Here is a link to a recent study by Vanguard called The Case for Index Fund Investing. If you look at the data, about 80% of actively managed funds do not beat their target index. There’s plenty of information on the internet regarding indexing vs. active management. That’s essentially the decision your making when investing in the Virginia Invest529 program.
The index fund choices are:
|Invest529 Portfolio Name||Index Fund Name||Symbol|
|Aggressive||Vanguard LifeStrategy Growth Fund||VASGX|
|Moderate||Vanguard LifeStrategy Moderate Growth Fund||VSMGX|
|Conservative||Vanguard LifeStrategy Income Fund||VASIX|
|Total Stock Market Index||Vanguard Total Stock Market Index Fund||VITSX|
|Total Bond Market Index||Vanguard Total Bond Market Index Fund||VBMPX|
|Total International Stock Index||Vanguard Total International Stock Index Fund||VTSNX|
|Inflation-Protected Securities||Vanguard Inflation-Protected Securities Fund||VIPIX|
|REIT Index||Vanguard REIT Index Fund||VGSNX|
|FDIC-Insured||Money Market Fund||N/A|
Update 12/09/2015: I’ve changed my son’s contributions to three funds. VITSS, VTSNX, and VGSNX. I’ve decided to be more aggressive until he reached age 10-12. He is almost five. The age-based James River was not aggressive enough for my taste. However, I still am holding the amount I originally put into it.
Actively-Managed Static Portfolios
Another unnecessarily fancy name. Actively managed usually means a regular mutual fund. That is what the Socially Targeted Parnassus Equity Income Fund is. That fund has been around for a while now and has performed well against the market.
The other three actively-managed static options are new as of October 2015 (but they are not mutual funds). Here is the clear as mud press release.
Of all the additions they could have made to the plan, these are nearly pointless** in my opinion. What they’ve done is taken three of the age-based portfolios, and decided they won’t “evolve” them over time.
The underlying investments are exactly the same as the age-based portfolios listed earlier.
|Invest529 Portfolio Name||Fund/Current Age-Based||Symbol|
|Socially Targeted||Parnassus Equity Income Fund||PRILX|
|Active Aggressive ***||80/20 equity to fixed income ratio||N/A|
|Active Moderate ***||50/50 equity to fixed income ratio||N/A|
|Active Conservative ***||25/75 equity to fixed income ratio||N/A|
***New as of October 2015. These portfolios mimic the investment allocations of the corresponding age-based portfolios. However, they do not adjust (i.e. evolve) over time.
Major Downsides of the Invest529 Program
Two glaring problems emerged once I opened my son’s account with the Virginia Invest529 program.
1. The website user interface to login, view, and update your account is TERRIBLE.
The Virginia 529 has invested a lot of money into the main website and it is unique, fairly easy to navigate, and informational. It uses modern technology and design, and is generally a pleasant website. But it’s a bait and switch.
Once you open an account and log in, the interface is archaic, ugly, difficult to navigate, poorly organized, a hugely disappointing. As in, why did I open an account with Virginia Invest529? disappointing.
For the most part, you can figure out everything you need to do here, but nothing is easy. The other difficult aspect of the website is related to glaring problem #2…
2. For every fund or ‘portfolio’ you select to invest in, a separate account is created. So when you have money withdrawn from your bank account to deposit, a separate withdrawal is made from your bank account.
To help explain, take an IRA plan with any large company like Fidelity or Vanguard as an example. Let’s say you want to invest $400 per month into your account. A withdrawal of $400 is automatically made from your bank account by Fidelity, then Fidelity takes that $400 and puts $100 into four different mutual funds of your choosing. When you get a monthly or quarterly statement, all four fund are summarized on one statement. Simple, right?
Well with the Virginia 529 plan, if you used the same amount of money on a monthly basis, VA 529 would make four separate debits from your bank account of $100 each on the same day, and purchase shares in four separate accounts. Each fund has a separate account number.
Recent improvements have been made to the Invest529 statements. No longer do you get a separate page for each account every month. Now statements consolidated by plan and participant. So my daughter’s three different fund holdings show up on one statement, even though each fund is a separate account.
This goes back to the tax deductibility confusion.
Despite recently statement enhancements, there is an obviously flaw in the way their data is set up, and the relationships they have with their fund providers. This terrible system discourages diversifying your portfolio, makes inter-fund transfer difficult, and pushes the participant to choose one age-based portfolio for simplicity.
Had they used a professional company to administer their plan like Fidelity or Vanguard, this issue would not be present. Instead they chose to build their own customer portal (which sucks), surely at a great cost, and they are forever in the information technology (IT) business now along with the college savings business.
This was obviously a poor decision that the Board of Directors or the Virginia legislature made a long time ago that probably cannot be corrected. What’s needed is a significant investment in their IT architecture, including back-end processing and a better user interface for their participants, instead of a prettier public facing website.
These two problems made me seriously consider other options for my children’s college savings. But the tax benefits outweigh the annoyances.
These bank savings accounts are for very conservative savers and only really make sense for a child who is within five years of attending college. But the age-based portfolios are also designed for kids approaching college, so again, choose based on your risk tolerance.
The CollegeWealth program has the same tax savings for up to $4,000 per year (increasing your VA tax refund by $230) as the other plans, and the bank accounts pay a modest interest rate. This money grows tax free in the account.
Positives I see from this plan is that both banks let you sign up online, linked from the Virginia 529 website. Also the relatively high bank rates and FDIC insurance that comes with a bank account are positives. While it has some basic highlights, I would not consider this option for my children because it is too conservative over 18 years. When my son is 14 maybe I’ll look into it again, but there are conservative options in the Invest529 plan that would be comparable to a savings account.
The whole concept of this plan could have been incorporated into the Invest529 or CollegeAmerica plans very easily, and essentially already is. So this program is unnecessary in my opinion and was likely a gift to the banks by someone in the VA legislature or Board of Directors when the program was initiated…
Note: As of 01/01/2017, the FDIC-Insured Portfolio is now available as a “Passively-Managed Static Portfolio”. It’s an “omnibus bank savings account with Union Bank & Trust”. In other words, it’s a money market fund. Availability of the FDIC-Insured Portfolio could be the first step in eliminating the CollegeWealth plan altogether (in my opinion), as it renders the CollegeWealth plan redundant and not necessary (which I’ve been saying for three years now).
Last but not least is the CollegeAmerica plan administered by American Funds. In some independent reviews, CollegeAmerica has ranked as the best of the four VA plans, and ranks high nationally. I did not give much consideration to this plan for my family for two reasons.
First, my particular crappy 401k plan only invests in American Funds, so a large portion of my net worth is in their hands already. For the sake of diversification cost control, I chose to avoid the use of American Funds.
Second, the plan REQUIRES you to open an account with a financial adviser instead of just signing up online. This to me is a deal-breaker because I prefer to manage my finances myself, and like to have access online to make decisions.
Reading more into this plan, I learned that once you sign up you do have online access, but finding a broker is another step you would have to take to use this plan. That means screening numerous brokers to find one you like and can trust and is not about to retire. Or, the website does say you can simply call a number and they will set you up with an adviser, if that is your cup of tea. But you will likely be stuck with whoever answers the phone that day.
If you already have an adviser who is qualified to open a Virginia 529 account for you however, this may be a good option for you. When you bring in an adviser, you are guaranteed to introduce new fees, and greater fees on your account. On the plus side, the CollegeAmerica plan would open up a much larger pool of investment options, although they are all American Funds which have notoriously high costs.
Again, introducing an adviser usually increases fees. The expense ratios for those funds are available in the prospectus on that link above. In addition to the fees, all advisers want to grow their relationship with you and your money over time. So you can expect calls from your adviser offering more advice, and asking you to give them your non-education money to be placed into more American Funds.
I happen to know a Virginia financial adviser qualified to open a CollegeAmerica account. He said it’s sort of a hassle because most people inquiring have small asset bases. Meaning, they aren’t wealthy. If you aren’t wealthy and you contact an adviser, they often aren’t willing to spend a lot of time with you. If you are wealthy, they’ll want to sell you more services. Lose lose, in my view. But I’m bias.
If you do chose an adviser, make sure they are a “Fiduciary”. Ask them point blank Are you a fiduciary? If they are, they are required to put your best interests first. Most advisers are not fiduciaries, and therefore put their own best interests first. Read more about fiduciaries here or google it.
Comparing Other States Plans to Virginia – The Simplified Answer
Look, there are some great websites out there for comparing the plans of different states. I especially recommend www.savingforcollege.com as an objective source for all things 529. But they focus on all of of the plans, not just Virginia 529.
There are also plenty of rankings.
But if you are a Virginia resident, you need to keep this simple fact at the forefront of your mind: Virginia residents who pay taxes in Virginia and participate in one of the Virginia 529 plans, are the only people who can get a Virginia state tax deduction from investing in their 529 plan.
Meaning, if you live in Virginia, and open an account with another 529 plan not associated with the state of Virginia, you will not get to deduct the $4,000 from your VA tax return.
I did look at the programs with Fidelity (NH, DE, AZ, Mass), TD Ameritrade (NE), and Vanguard (NV, IA, CO, NY, MO) in my search. But ultimately for my daughter’s new plan, I chose to go with the Virginia 529 Invest529 plan again because of the low fees and few acceptable investment options.
** I am not a tax or investment professional. Contact your tax adviser for your specific tax implications. Also please view the Disclaimer page. The opinions expressed on this website are my own and should not be considered advice. Consult your own investment adviser to determine the best investment vehicles for your needs and risk tolerance.
Note: If you are a representative or affiliate of the Virginia 529 Board and would like to correct or challenge anything on this review page, please contact me. I’m also available to engage in dialog regarding possible plan improvements. Congratulations on your rankings, but the plan still needs improvement. Note to readers, the Virginia 529 Board has not contacted me to dispute anything on this page.