Military Education Planning: What is a 529 Plan?

College is a major investment—and not just of time and energy. According to the Education Data Initiative, the average cost of a four-year degree at a public university is over $100,000 when you factor in tuition, fees, housing, and other expenses. Choosing the right major, applying for financial aid, coordinating schedules, and passing your classes is no small feat. It’s a lot to manage, especially for families trying to make smart financial choices.

Managing college can be tough, no doubt — but it’s worth it. There are several tax-advantaged ways to save for education, including Education Savings Accounts (ESAs), custodial accounts like UGMAs, and even Roth IRAs in some cases. But in this article, we’re focusing on one of the most flexible and widely used options: the 529 plan.

What is a 529 plan?

The IRS defines a 529 plan as a state-sponsored, tax-advantaged savings account designed to help families save for future education costs. While it’s not a military-specific benefit, its flexibility and tax treatment make it especially useful for military families. Earnings in a 529 plan grow tax-deferred, and qualified withdrawals for tuition, fees, books, and housing are tax-free. Some plans also support K–12 tuition and registered apprenticeship programs.

Types of 529 plans

There are two main types of 529 plans.

College Savings Plans function like investment accounts. Contributions are typically allocated to a selection of mutual funds, index funds, exchange-traded funds (ETFs), or age-based portfolios that automatically adjust risk over time. The account’s value falls or rises based on how these investments perform.

Prepaid Tuition Plans let families lock in current tuition rates at participating public colleges. This may appeal to anyone planning for in-state schools but offers less flexibility overall.

Military Education Benefits and Opportunities

Military families have access to other education benefits that can be effectively paired with a 529 plan to further reduce the cost of higher education.

The Post-9/11 GI Bill, for example, covers tuition, housing, books, and supplies for eligible service members and their dependents. The Yellow Ribbon Program supplements GI Bill benefits to help cover costs at private or out-of-state institutions. Spouses may also be eligible for the MyCAA program, which provides tuition assistance for licensing and certification programs.

Coordinating with the GI Bill: A Stacking Opportunity

While the GI Bill remains one of the most robust education benefits available to military families, it doesn’t always cover every expense — or every child. That’s where a 529 plan can help extend your reach.

For example:

• If you’ve transferred GI Bill benefits to a dependent attending a private or out-of-state institution, the GI Bill may only partially cover tuition.
• After Yellow Ribbon funds are applied, 529 plan funds can fill in gaps, such as room and board, books, supplies, or remaining tuition.
• Two benefits programs cannot be used to cover the exact same expense, but they can work in tandem to expand coverage.
• Additionally, if one child uses the GI Bill but another does not, families can reassign 529 plan beneficiaries as needed.

How do 529 Plans Work for Military Families?

Flexibility Across States and Borders

One of the biggest advantages of a 529 plan is its flexibility. Unlike state-sponsored scholarships or tuition assistance programs, 529 plans can be used at any eligible institution – not just in-state schools. This includes most accredited U.S. colleges and universities and many international institutions that participate in Title IV federal student aid programs.

For military families that frequently PCS, the nationwide and potentially global usability open the door to a wider range of education options. And whether the plan’s beneficiary attends school stateside or abroad, qualified expenses remain tax-free at the federal level.

Open Contributions from Family and Friends

Another advantage of 529 plans is that anyone can contribute. Parents, grandparents, godparents, aunts, uncles, or even friends can all support a beneficiary’s education by making contributions to the account. This open structure is particularly helpful for military families, who often rely on broader support networks.

Some families even make their support network aware of the opportunity to contribute to a child’s education on birthdays or holidays instead of purchasing traditional gifts. And in many cases, family and friends appreciate the chance to be part of such a meaningful pursuit.

Financial Advantages for Affluent Military Families

In addition to its education-saving advantages, a 529 plan may play a strategic role in long-term wealth investing and planning — especially for military members who may have the means to make more significant contributions.

As of 2025, individuals can contribute up to $19,000 per beneficiary per year without triggering the federal gift tax. While the IRS doesn’t set annual contribution limits, many states have their own maximum lifetime and annual contribution limits.

A unique provision of 529 plans allows for 5-year gift tax averaging, meaning you can front-load up to $95,000 per beneficiary ($190,000 for couples) in a single year while spreading the gift evenly over five years to avoid paying gift taxes. This can decrease the size of a taxable estate and help future generations afford education — making it appealing for those who want to preserve their legacy.

How to Use the 529 Plan with the Post-9/11 GI Bill

529 plans offer more flexibility than the Post-9/11 GI Bill, so you should apply as much of the GI Bill’s benefits toward educational costs first. Sometimes, the GI Bill provides full educational coverage.

If that’s the case, a 529 plan could be used to fund another opportunity, such as graduate school, educational costs for another eligible beneficiary. And in the absence of additional educational needs, the money in a 529 plan can be rolled into a retirement account without taxes or penalties, following IRS guidance and restrictions. Be sure to consult a tax professional for specific questions.

To make the most of your education benefits, planning ahead matters. While you can’t use both the GI Bill and a 529 plan to pay for the same costs, you can use them to cover different qualified expenses.

With a thoughtful approach, the two programs can complement each other — helping families address more of the total cost of education without overstepping eligibility rules. When using the Post-9/11 GI Bill alongside a 529 plan, be sure to document your expenses, and track your GI Bill’s eventual expiration to align educational goals with your benefits timeline.

Limitations of the 529 Plan

While 529 savings plans offer many valuable advantages, they also come with limitations military families should consider:

• Investment options may be limited to those chosen by the state plan administrator.
• Assets in a 529 plan can impact eligibility for need-based financial aid, like the Pell Grant, but they typically have a smaller impact than student-owned accounts.
• Non-qualified withdrawals are subject to income tax and a 10% penalty on earnings, unless an exception applies, such as tax-free scholarships, a beneficiary’s death or disability, and attending a US military academy.
• Funds must be used for qualified expenses at eligible institutions to avoid penalties.

A 529 plan doesn’t replace military education benefits — but it can be a powerful complement. Whether you're planning for multiple children, preparing for education costs not covered by the GI Bill, or seeking flexibility as your family moves through different duty stations, a 529 plan offers options worth considering.

For more information and tailored guidance, speak with a First Command Financial Advisor to see how education savings strategies can fit into your broader financial plan.

Frequently Asked Questions About 529 Plans

Can I change the beneficiary of a 529 plan?

Yes. The account owner can change the beneficiary to another qualified family member without triggering taxes or penalties. This flexibility is useful if the original beneficiary receives a scholarship, joins the military, or decides not to pursue higher education.

What are some examples of qualified education expenses?

Qualified expenses include tuition, fees, books, supplies, and required technology for vocational, trade or conventional four-year colleges. For students enrolled at least half-time, room and board also qualify. Up to $10,000 per year can be used for K–12 tuition. Some apprenticeships and student loan repayments may also qualify.

What happens if my child gets a scholarship?

If your child receives a scholarship, you can withdraw an equivalent amount from the 529 plan without the 10% penalty. You’ll still owe income tax on the earnings portion, but the principal is returned tax-free. You can also reassign the funds to another family member.

Prior to investing in a 529 College Savings Plan, you should compare the Plan with any 529 college savings plan offered by your home state or your beneficiary’s home state and consider, before investing, any state tax or other benefits that are only available for investments in the home state’s plan. Please read the Plan’s Disclosure Document which includes investment objectives, risks, fees, charges and expenses, and other information. You should read the Plan Disclosure Document carefully before investing. For this and other information on any 529 College Savings Plan, contact First Command at or your Financial Advisor.

Please note that the availability of tax or other benefits may be conditioned on meeting certain requirements such as residency, purpose for or timing of distributions or other factors as applicable.

As with any investment, it is possible to lose money by investing in a 529 College Savings Plan.

Information provided is for general purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Where specific advice is necessary or appropriate, please consult a qualified tax or legal advisor.

The information in this article is provided for informational purposes only and is based on known and unknown risks, assumptions, uncertainties and other factors. The information is not appropriate for the purposes of making a decision to carry out a transaction or trade nor does it provide any form of investment advice, or make any recommendations regarding particular financial instruments, investments, or products. Actual results, performance, or achievements may differ materially from any future results, performance, or achievements expressed or implied herein. Investing in securities has an inherent risk and your investments may lose value. Always seek the advice of a competent financial advisor who will evaluate and make recommendations based on your specific financial situation.