Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

May an aunt set up a 529 plan for her niece?

1. Yes, with conditions

2. No, only parents can

3. Yes, without restrictions

4. No, it must be a legal guardian

The correct answer is: Yes, with conditions

The answer is that an aunt can set up a 529 plan for her niece, but there may be some conditions involved. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. While it is most commonly established by a parent or grandparent, there are no federal rules that strictly limit who can open a 529 account. Various states have different regulations, but typically anyone with a recognizable relationship to the beneficiary, such as an aunt, can contribute or set up an account on behalf of the child. Conditions could refer to the requirements set forth by the specific state in which the 529 plan is established, such as having a valid Social Security number for the beneficiary or meeting particular residency requirements. It’s also essential for the aunt to ensure that she follows the procedures laid out by the plan, which might require her to be listed as the account owner while the niece is designated as the beneficiary. This allows for flexibility in funding a child’s education from various family members, not just parents or legal guardians, thereby enhancing college savings opportunities.