Virginia Education Savings Trust (VEST) Review: Low Cost 529 Plans With Solid Investment Options

529 Plan:
Virginia Education Savings Trust

Reviewed by:
Rating:
5
On February 23, 2010
Last modified:October 30, 2012

Summary:

Virginia Education Savings Trust (VEST) is one of the best 529 college savings plans according to Morningstar ranking. VEST is a direct-sell plan that's available nationwide. Investment choices of VEST include age-based portfolio from Vanguard and more.

Virginia 529 plansWhen I opened the 529 college savings plan for our first daughter in 2005, the plan offered by New Jersey was never an option to me because there is not tax benefit for using NJ 529 plan even for the state residents. But that wasn’t all. What really made me stay away from NJ college savings plan, called New Jersey Best College Savings Plan that is managed by Franklin Templeton, was the poor performance of the plan and high cost of investing with plan. In fact, Morningstar has rated the plan as one of the worst 529 plans for years. Eventually, I went with two plans that also offer extra incentives: UPromise 529 Plan and Fidelity UNIQUE Plan. Both are tied to credit cards that I use often, the Bank of America UPromise Card (1% cash back) and Fidelity 529 College Rewards Card (2% cash back), so I can turn cash back earned from using the cards into savings for college. While it’s nice to have that extra money invested without much effort since I use the credit card for almost every purchase anyway, I have to admit now that the choice wasn’t the best that I could have made back then. Therefore, when it was time to get another 529 account for the younger one, I did my research more thoroughly and settled with Ohio CollegeAdvantage 529 Plan. So far, I am very happy with the Ohio plan, not only because the plan’s low cost and wide selection of funds, but also the periodic referral bonus offers, which has provided a huge boost to the account’s growth last year.

All the above investment decisions were made when we were living in New Jersey.

Now that we have settled in Virginia, it’s time to make some adjustments to our 529 plans. Unlike the state of New Jersey, Virginia offers a better option for saving for college and tax incentive for using the state sponsored program. Currently, Virginia has four college savings plans: Virginia Prepaid Education Program (VPEP), Virginia Education Savings Trust (VEST), CollegeAmerica and CollegeWealth. The plan I chose is the Virginia Education Savings Trust (VEST) because

  • It’s a direct-sold college savings plan that is open for enrollment all year long;
  • It offers a wide selection of low-cost investments, including stocks (domestic and international), bonds, TIPS, and REIT;
  • It was selected as one of the best 529 plans by Morningstar;
  • We can deduct up to $4,000 per year per account in Virginia income tax.

VEST Investment Portfolios

The tax benefit alone isn’t enough for me to make the switch. Fortunately, that’s not only benefit the VEST plan offers. The main advantage of the plan, in my opinion, is its investment choices. VEST plan has two types of porfolios: Age-based evolving portfolios and non-evolving portfolios.

The age-based evolving portfolios consist a total of nine portfolios: Eastern Shore, Alleghany, Chesapeake, Potomac, Southside, Blue Ridge, and Piedmont. With the age-based portfolios, as we know, the asset allocations, mainly between stock and fixed income, of each portfolio evolves as the beneficiary’s age approaches the age for college. It works a lot similar to the way that life-cycle funds work. For age-based evolving portfolios, the underlying investments include large-cap, small-cap/mid-cap domestic equity funds, foreign equity funds and fixed income funds, managed by Vanguard, Templeton, Capital Research and Management, INVESCO, etc.

On the other hand, non-evolving portfolios include ten portfolios: Aggressive Portfolio, Moderate Portfolio, Conservative Portfolio, Money Market Portfolio, Total Stock Market Index Portfolio, Total Bond Market Index Portfolio, Total International Stock Index Portfolio, Inflation-Protected Securities Portfolio, REIT Index Portfolio, and Socially Targeted Investment Portfolio, all but the last one are made of Vanguard index funds.

After examining both types of portfolios, I decided to use funds in the non-evolving portfolios category to build my own portfolio in order to, I hope, boost the growth of the portfolio when our kids are both more than 10 years away from college. The four funds I chose are: Vanguard Total Stock Market Index Fund (50%), Vanguard Total International Stock Index Fund (33%), Vanguard REIT Index Fund (8%) and Vanguard Total Bond Market Index Fund (9%). Right now, the portfolio invests heavily in stocks as you can see from the above asset allocations. Going forward, I will have to the adjust the allocation of the portfolio myself as the portfolio is not evolving “automatically”. It’s an additional job that I will need to do myself, but it gives me the flexibility I want in building the portfolio. Will this be a good strategy or a bad one? Only time will tell :)

VEST Costs

When selecting an investment, whether it’s a regular investment such as a mutual fund, or an investment for college like the 529 plan, cost is always a top concern to me. Since most of VEST’s underlying funds are low-cost Vanguard index funds, the overall cost of investing in VEST plan is rather low. For example, the total annual fees for age-based portfolio range from 0.35% (Piedmont Portfolio) to 0.53% (Eastern Shore Portfolio).  For non-evolving portfolios, the Socially Targeted Portfolio has the highest cost at 1.0%%. All other Vanguard funds are quite cheap, with costs from 0.30% (Total Stock Market Index Fund) to 0.52% (Total International Stock Index Fund).

In addition, VEST plan also charges an one-time application fee of $25 for each new account. Other fees include

  • Account cancellation: $25
  • Change of beneficiary: $10
  • Rollover to another QTP: $25
  • Change of account owner: $10
  • Non-sufficient funds: $25
  • Expedited distribution: $50

Overall, it seems that investing with VEST plan costs a little bit more than doing so with the Ohio CollegeAdvantage plan, especially for age-based portfolio, and Ohio plan doesn’t charge account setup as the VA plan does. However, both plans are rather cheap to own and both offer great investment choices. What makes the VA plan even sweeter is the $4,000 per account annual Virginia tax deduction. It will make that little additional cost worth it.

Virginia Education Savings Trust (VEST) is one of the best 529 college savings plans according to Morningstar ranking. VEST is a direct-sell plan that's available nationwide. Investment choices of VEST include age-based portfolio from Vanguard and more.

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10 Responses to “Virginia Education Savings Trust (VEST) Review: Low Cost 529 Plans With Solid Investment Options”

  1. Jeremy |  Feb 23, 2010 at 9:51 pm

    We use the Virginia plan and don’t even live in Virginia. The tax break we’d get in Michigan is so small that the higher fund expenses would effectively wash it out and then some over time. I’m really happy with VEST, but I can tell you that the reporting sucks. Every fund is a separate account, so if you invest in 5 different funds it will show up as 5 accounts online and you’ll get five individual statements each quarter.

    I guess that’s a relatively minor issue, but still kind of a hassle.

    • Sun |  Mar 01, 2010 at 11:25 am

      As I am using individual funds to build the portfolio, I got four accounts which, as you said, is pretty weird. Of course, for each of them, I have to set up a ACH purchase plan for monthly purchase. The good thing is that I only have to do it once. Not too much trouble for a solid plan :)

  2. andrea feirstein |  Feb 24, 2010 at 11:34 am

    Very thoughtful analysis by someone who has taken the time to delve into these plans. I hope VEST provides what you need overtime and I am glad you recognize that the state tax deduction isn’t everything in the analysis. It’s important for investors to evaluate all the important factors – investments, fees, enhancements – before investing in a single 529.

  3. wb |  Mar 01, 2010 at 11:03 am

    We’ve got the VEST for all three children (Vanguard Total Domestic and Total International). But an additional advantage is that we also did the Prepaid College tuition plans for all three. We’re crossing our fingers they get into one of the good VA colleges – but it’s not too bad if they do not, since it is flexible – it seems expensive now, but I’m sure we’ll be glad in 15+ years. The new $4,000 per account is a nice bonus.

    • Sun |  Mar 01, 2010 at 11:28 am

      I also like the $4,000 per account tax deduction. It’s not a lot of money since VA state tax rate is already quite low. I am considering switching our younger daughter’s plan to VEST as well. Now we have Ohio CollegeAdvantage for her, which is also a very good plan.

  4. nacnud nosmoth |  Jan 09, 2011 at 12:14 pm

    One thing you didn’t mention is that VEST has *terrible* customer service. For example, it takes them WEEKS to process a payment request. Often they don’t answer their telephones during normal business hours. What’s the use of choosing a plan with low fees if you wind up paying late fees from the school because your tuition payments are late because VEST “only processes payments on Wednesdays”?

    • Sun |  Jan 09, 2011 at 12:21 pm

      Sorry to hear about your experience. I am still in the accumulation stage so I haven’t had the chance to experience their payment process.

  5. dude |  Apr 07, 2011 at 8:52 am

    Just signed up for VEST today…use the promo code “VIRGINIA” (without quotes) and they wave the $25 account setup fee.

    • Sun |  Apr 07, 2011 at 8:59 am

      Do you have the source for the promotion? I can’t find it on their web site, but it’s something I want to let readers know.

  6. momofthree |  Oct 11, 2011 at 12:00 pm

    yes, “virginia” will waive the $25 fee. i used it today (10/11/11) when opening all 3 accounts. Also i called their main office and someone answered the phone right away. Hopefully it stays like that! I used the age-appropriate funds but will perhaps change the option in one-year after i see how these perform.