In a small saucepan, combine the granulated sugar and water. Heat over medium heat, stirring constantly, until the sugar is completely dissolved. Do not boil.
Remove the saucepan from the heat and let the sugar syrup cool slightly for about 5 minutes. This is crucial to prevent the vanilla extract from evaporating its delicate flavor.
Stir in the vanilla extract. If you're using vanilla bean powder for an extra boost of flavor and visual specks, whisk it in now until fully incorporated.
Allow the mixture to cool completely to room temperature.
Once cooled, pour the vanilla bean paste into a clean, airtight glass jar or container. It will thicken further as it chills.