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So I don't think DD could contribute to her own 529 plan.
DD probably* can fund a 529 with herself as beneficiary - but ...

I don't think that transferring the money from her to you so that you can fund a 529 plan is an acceptable use of her funds.
I'd agree that using that money for account with DD as bene, OP as account holder doesn't seem kosher to me.

DD as bene and account holder seems like acceptable use - but I think Roth IRA would be better saving mechanism than 529 with DD as bene & account holder. (You can look further into the pros/cons between those two options - )

Of course I do not want to discourage you from using other $ to fund a 529 and get the NY tax deduction. I don't know NY's rules, but some of the states make it a very good effective ROI by contributing to their 529 - at least for the first year. :)

* there might be some limitation of account holder having to be 18 - you'd have to look into UGMA-529:
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