Can I Open a 529 Plan for My Niece?

Yes, you can open a 529 plan for your niece. These are tax-advantaged savings accounts for funding qualified education expenses. Any U.S. citizen or resident alien can open an account and name anyone as the beneficiary, including a niece, nephew, or friend, with no income restrictions on the contributor or student. Savings in a 529 plan grow free from federal income tax, and withdrawals for eligible educational costs are also tax-free, which can help a family member pay for college, vocational school, or K-12 tuition.

Establishing Account Ownership and Beneficiary

When you open a 529 plan for your niece, you are the “account owner” and she is the “beneficiary.” As the account owner, you maintain control over the funds, including deciding how the money is invested and when withdrawals are made. You are the only one who can authorize distributions from the account.

As the account owner, you can change the plan’s investment options, which is allowed up to twice per calendar year. You also have the power to change the beneficiary. If your niece does not pursue higher education or receives a full scholarship, you can change the beneficiary to another eligible family member, such as another niece or nephew, your own child, or even yourself, without incurring taxes or penalties.

The beneficiary has no legal claim to the money in the 529 account and cannot make withdrawals or investment decisions. The beneficiary is the individual whose qualified education expenses can be paid for from the account. This separation of ownership and benefit ensures your contributions are managed according to your intentions.

Information and Decisions Required to Open the Account

To open a 529 account, you must provide personal information for yourself as the account owner and your niece as the beneficiary. For both individuals, you will need a full legal name, a permanent U.S. address, date of birth, and a Social Security Number or Taxpayer Identification Number. Having this information ready will streamline the application process.

You must also make two decisions before opening an account. The first is selecting which state’s 529 plan to use, as you are not restricted to your own state’s plan. Plans differ in their investment options, fees, and potential state tax benefits for residents, so you should compare different programs to find one that aligns with your financial goals.

The second decision is choosing an investment strategy. Plans offer a variety of investment portfolios. One option is an age-based or target-date portfolio, which automatically becomes more conservative as the beneficiary nears college age. Alternatively, you can select a static portfolio with a fixed allocation of investments that you choose.

The Account Opening Process

Once you have selected a plan and gathered the necessary information, the process of opening the account is straightforward. Navigate to the website of your chosen 529 plan and find the link to “Open an Account” or “Enroll Now” to start the online application.

The application will guide you through entering the personal information for yourself and your niece. You will designate yourself as the account owner and your niece as the beneficiary. During this process, you will also select the investment portfolio you chose, whether it’s an age-based track or a custom mix of static options.

The final step is to set up the initial funding. Most plans allow you to link a bank account for an electronic funds transfer (EFT) to make your first contribution. After submitting the application and funding the account, you will receive a confirmation that your 529 plan is active.

Key Financial and Tax Considerations

Contributions to a 529 plan for your niece are considered gifts for tax purposes. You can contribute up to the annual gift tax exclusion amount per individual each year without filing a gift tax return. For 2025, this amount is $19,000. A rule for 529 plans allows a lump-sum contribution of up to five times the annual exclusion—$95,000 for an individual or $190,000 for a married couple—and treat it as if made over five years, provided no other gifts are made to that beneficiary during that period.

Consider the potential impact on your niece’s eligibility for financial aid. A 529 plan owned by a parent is reported as a parental asset on the Free Application for Federal Student Aid (FAFSA). However, a 529 plan owned by an aunt or uncle is not reported as an asset on the FAFSA.

Under FAFSA simplification rules, distributions from a relative-owned 529 plan, such as one owned by an aunt or uncle, are no longer reported as untaxed student income. This change removes a previous financial aid penalty. An aunt- or uncle-owned 529 plan is therefore a favorable way to save for college without negatively impacting the student’s need-based aid eligibility.