You want your children to get the best education possible so they achieve success throughout their lives, but saving for college can be a challenge. As a military family, you face many obstacles to consistent saving that civilian families do not experience, such as multiple moves and potential deployments, making it harder to achieve financial stability. These challenges can impact your long-term financial goals, including saving money for your children’s education.  

Saving for College Using a 529 Plan 

A 529 Plan is a savings plan specifically designed to help families set aside money to cover qualified education expenses. You can secure either a 529 Prepaid Tuition Plan or a 529 College Savings Plan. Here’s what they look like:  

529 Prepaid Tuition Plan 

A prepaid plan is offered by some states and educational institutions to pay for college credits at current tuition prices, to be used in the future. It covers tuition and mandatory fees but does not include room and board expenses.  

This plan cannot be used for K-12 expenses or for student loan repayment. With a 529 Prepaid Tuition Plan, some states will back or guarantee the money paid into the plan, but not all of them will allow it. As an investor, your money could also be at risk if the plan sponsor experiences a financial shortfall.  

529 College Savings Plan 

This plan is offered as an investment account through the state that sponsors the 529 Plan. Tuition, living expenses, and other qualified expenses are covered, and up to $10,000 can be used annually for tuition and fees at private or religious K-12 schools. Additionally, up to $10,000 can be used for qualified student loan debt repayment in a lifetime for the account beneficiary or their siblings.  

529 Plan Limitations 

While the 529 Plans can be a great higher education savings tool, there are some limitations, including management fees and expenses related to the chosen investments within the plans. Conversely, GI Bill benefits have no such associated costs. There can also be limitations on the 529 investment options when you choose how you will invest the funds you put into the plan. Your options can be limited, with restrictions on switching them over the years as you contribute to the savings plan. 529 account balances can also affect your financial aid eligibility since most government aid is in the form of student loans. Additionally, you could incur penalties and taxes if the funds are used for non-educational purposes.  

If you save money through a 529 Plan and your child does not go on to college, you can either designate the account to a different child or another eligible family member (possibly even yourself) as the beneficiary without incurring taxes or penalties. You can also withdraw the funds for non-educational purposes, but there will be tax implications associated with this choice. There is no expiration on the 529 Plans so you can keep it intact just in case your child decides to pursue higher education at a later date. Another option is to roll the plan over to a retirement account, such as a Roth IRA, for the same beneficiary. 

Considerations for Servicemembers 

While some 529 Plans require you to use the money at a school within the state in which you invest it, it’s important to note that military members can choose a savings plan from any participating state. A PCS does not require servicemembers to change their plan designations or location. However, prepaid tuition plans are not transferable to a different state or institution, even with a PCS or military orders, so servicemembers should be mindful of the 529 Plan in which they choose to participate.  

Maximizing Your 529 Plan with the GI Bill 

Strategically using a 529 Plan to supplement military education benefits, such as the GI Bill, can maximize your educational funding. The GI Bill offers educational assistance to Veterans, active-duty servicemembers, and their eligible dependents. However, there are limits on covered expenses, especially for private institutions and out-of-state tuition, and fees and contribution limits vary from state to state.  

For more information about 529 Plans, visit Publication 970. You can also call an AAFMAA Member Benefits Coordinator at 800-522-5221, option 2, then option 2 again, or email [email protected]. Learn more about other military-related benefits in the AAFMAA Learning Hub.