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

Can parents of a beneficiary contribute to a 529 plan?

1. Only if they are the account holders

2. Yes, they can contribute

3. No, they are excluded from contributing

4. Only when the beneficiary is a minor

The correct answer is: Yes, they can contribute

Parents of a beneficiary can indeed contribute to a 529 plan, which makes the answer correct. A 529 plan is primarily designed to encourage saving for future education expenses, and contributions can be made by a variety of individuals beyond just the account holders. In practice, if parents wish to contribute to the plan, they can do so regardless of whether they are named as the account holders. This allows for flexibility in funding education savings. Additionally, contributions made by any individual, including parents, may still benefit from the tax advantages associated with 529 plans, such as tax-free growth on investments and tax-free withdrawals for qualified education expenses. The incorrect choices reflect misunderstandings about the rules governing 529 plans. For example, stating that only account holders can contribute limits the accessibility of the plan, while suggesting that contributions are exclusive to minors dismisses the ability of adults to contribute regardless of the beneficiary's age. Thus, the structure of 529 plans supports contributions from a broader audience, enhancing the savings potential for educational expenses.