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Description: Does parental involvement or formal education reduce the often found competence gap between children from different socioeconomic backgrounds? To answer this question, we examined the joint and unique effects of parental education, socioeconomic status, and home learning environment on children’s vocabulary competence and growth in early childhood. We used latent growth curve models to distinguish between pre-school vocabulary competence and growth across primary school. Analyses were based on data from the German National Educational Panel Study (NEPS), a large-scale longitudinal study assessing vocabulary competence and family background from Kindergarten to the 3rd grade of elementary school. To scrutinize the moderating effects of socioeconomic status, parental education, and home learning environment on model parameters, we relied on local structural equation modeling. Results revealed a moderate positive effect of parental education on children’s receptive vocabulary competence, which fully explained the effect of socioeconomic status on this language skill. Home learning environment had no effect on children’s competence level. Initially lower performing children showed steeper growth trajectories across school, but the effect was small compared to the initial differences due to parental education. In summary, the results indicate that formal schooling helps to reduce vocabulary competence differences across children from different educational backgrounds, but are not able to fully overcome them.