Turns Out Vanguard Age Based 529 Plan Funds Are Actually Based on Age

Doh 529 Plan Beneficiary Mistake

We've been investing in bonds and cash within my youngest daughter's 529 plan. Doh!

Earlier this week I was reading a r/personalfinance thread (great place for pf advice by the way) from someone considering the Ohio 529 Savings Plan. I'm a fan of that plan and so I chimed in with how I thought it was a good plan for me, a Texan, since I do not have a state tax deduction to consider.

Additionally, the CollegeAdvantage plan (as it's commonly known) comes with an easy online interface and most importantly, low-cost funds from Vanguard.

The redditer went on to ask me about the different funds and which one I chose. I shared with him that I chose the Vanguard Aggressive Age-Based Option for both of my daughters. When studying the plan on the Vanguard website I discovered that the funds' mix of stocks, bonds, and cash was based on the beneficiary's age. Here's a visual breakdown from Vanguard:

Vanguard Age Based 529

This is something I remember knowing with my first daughter. But I somehow forgot when opening up the second daughter's 529 account. You see, we didn't have our second daughter's SSN or even birth date when we opened the account. We actually opened it using Mrs. PT as the beneficiary, before the birth.

By the time my second daughter was born, we had funded the account and we were already invested in the age-based fund: 75% in bonds and 25% in cash. Why this allocation? Because my wife is older than 19, obviously!

So thanks to this reddit thread I realized the error of my ways. Now I know why my second daughters account has performed so poorly compared to my older daughter. Because the second daughter's account has been in bonds and cash! So embarrassing. Here's the 2013 performance comparison:

Daughter #1 (under 5yrs):

Performance of First Daughters 529 Plan

Daughter #2 (actually based on Mrs PT's age – over 19yrs):

Performance of Second Daughters 529 Plan

Now I'm in the middle of changing the 529 plan beneficiary, something I was dragging my feet on because I didn't think it mattered.

I spoke with CollegeAdvantage briefly and they assured me that once I changed the beneficiary information the bonds/cash funds would be sold and the account would reinvest into stocks (based on the under 5 bracket).

This is certainly something I should have done 2.5 years ago. The good thing is that we've got 16 more years to make up the difference.

The moral of the story is always take time to understand your investments. Even with the best intentions (like starting a 529 plan before your child is born), mistakes can be made.

Has this ever happened to you? Are you invested in the Vanguard age based 529 plan funds? Do you see this as another potential flaw in age-based investing options? Or am I just a lonely idiot here?

Image by striatic

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  1. I thought I would start a 529 plan after my first child is born. After reading the post it makes a scenes why we should start early. Thanks for helpful post.

  2. Jeff Sustain Life Blog says:

    That’s no good PT, but nice that you caught it. I’m currently considering opening up a 529 for my currently non existent children, but am not sure how early we can open it. My wife and I are going to start trying within the next 12 months, and this is just another thing that we probably should get done (along with life insurance).
    I’ve been curious as to how these age based plans will work – I have my Roth IRA fully invested in one as well.

  3. Philip Taylor says:

    hhbudgetcoach It’s so easy to get careless once you think you’ve “arrived” financially. Auto-pilot is not good for too long. Luckily for both of us, it’s just a course correction.

  4. Philip Taylor says:

    Jeff Sustain Life Blog Thanks, Jeff. Most, if not all plans will require a ssn for the beneficiary. So you’d have to list someone else as beneficiary (a common practice) until you get the ssn.

  5. hhbudgetcoach says:

    PT, I recently had a similar Duh moment.  Back in 2008/2009 time frame when the market was tanking and going crazy I made some changes to my 401k contributions.  I apparently hadn’t paid close attention to my portfolio.  It’s all online.  I realized in March of this year (2013) I had been putting my entire 401k contributions into company stock since July 2010!  I corrected the problem and diversified.  Luckily the company stock had performed well and it doesn’t look like it cost me much money really.  Goes to show you paying attention is pretty important.  I’m an idiot too!  :o)  Thanks for sharing.