He was named its chief investment officer in 2013.
Buckley joined Vanguard in 1991 as an assistant to then chair John C. Bogle and held senior leadership roles including chief information officer and head of the information technology division from 2001 to 2006.
In a unanimous decision by the board of directors, Tim Buckley, who now serves as Chief Investment Officer, was selected to succeed McNabb.
Mr. Buckley said he has several months to shadow Mr. McNabb and noted he has worked closely with Mr. McNabb on firmwide plans including expansion overseas, growing its advice service and lowering investment costs. McNabb, who has been CEO since 2008, will continue to serve as chairman of the board, Vanguard said.
Tim Buckley taking over as the new Vanguard CEO next year will bring an end to Bill McNabb's roughly 10 years as the company's CEO. Its founder, John Bogle, popularized the concept of low-priced index fund investing. McNabb will remain as chairman of the board, a role he assumed in 2009.
Greg Davis, 46, Vanguard's global head of fixed income, replaces Buckley as chief investment officer.
"Vanguard's mutual structure and client-focused culture serve as the foundation for everything we do, and I am honored to lead this great organization into its next chapter", said Buckley in a statement.
McNabb joined Vanguard in June 1986 before becoming head of the firm's Institutional Investor Group in 1995.
Vanguard saw global inflows of $289bn in 2016 - more than the rest of the industry combined.
"Thanks to Bill's strong leadership over the past ten years, Vanguard is well-positioned to continue helping clients achieve investment success", Buckley said in a statement.
The position of chief investment officer that Buckley is vacating will be filled by Greg Davis, now the global head of Vanguard's fixed income group, the press release said. He has been the fund firm's chief investment officer. McNabb has commented that Davis' prior experience as a portfolio manager and leader of investment management teams will make him an "excellent steward of our clients' assets".