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

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Who benefits from a 529 plan?

  1. The donor

  2. The beneficiary

  3. The state government

  4. The financial advisor

The correct answer is: The beneficiary

A 529 plan is primarily designed to benefit the beneficiary, typically a student or a child who is saving for future education expenses. The key advantage of a 529 plan is that it provides tax-free earnings and tax-free withdrawals for qualified education expenses, which can include tuition, room and board, and books. The funds in the plan are owned by the account holder (the donor), but they directly support the educational aspirations of the beneficiary. Since the main goal of the 529 plan is to finance education, the beneficiary gains the most from the accrued savings and the tax incentives associated with the plan. Other options involve different aspects that may seem beneficial but do not align with the primary purpose of a 529 plan. The donor receives some tax benefits, but those are secondary to the intended benefit for the beneficiary. The state government may gain in terms of administration or funding for higher education, but it does not directly benefit from the funded education costs. Similarly, while financial advisors can earn fees from administering such plans, they are not the primary beneficiaries of the accounts. The direct aid in funding education is why the beneficiary is the correct focus here.