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

What are the primary investment vehicles allowed under a 529 plan?

1. Stocks and bonds

2. Mutual funds and ETFs

3. Real estate and commodities

4. Certificates of deposit

The correct answer is: Mutual funds and ETFs

The primary investment vehicles allowed under a 529 plan are mutual funds and exchange-traded funds (ETFs). A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. While the specific underlying investments can vary by plan, most 529 plans offer investment options that typically include mutual funds and ETFs, which provide diversification and professional management of investments. Mutual funds pool money from many investors to purchase a diverse portfolio of stocks and/or bonds, while ETFs are similar but trade on stock exchanges like individual stocks. This structure allows account holders to benefit from market growth potential while managing risk through diversification. By using these investment vehicles, 529 plans aim to grow contributions tax-free, ultimately allowing for a more substantial fund when educational expenses arise. The other options do not reflect the standard offerings of 529 plans. Stocks and bonds can be components of mutual funds and ETFs, but they are not typically offered directly as choices within the plans. Real estate and commodities are usually not part of the investment options, and certificates of deposit (CDs), while low-risk, do not align with the primary objective of maximizing education savings through market investments.