I think there are 2 things to consider here:
1) Qualified withdrawals associated with costs associated with attending a military academy like USMA. These are like any other qualified withdrawal from a 529 for education-related expenses though typically harder to come up with for a military academy as almost all is included for attending students/cadets/midshipmen etc.
2) Non-qualified withdrawals. Normally you would pay tax on the 529 earnings portion at your tax rate and also pay a 10% penalty on the earnings. The Military Family Tax Relief Act of 2003 and documented in the instructions for Line 6 in the 5329 instructions exempts the ("Distributions from an education account
made because of attendance by the beneficiary at a U.S. military academy. This exception applies only to the extent that the distribution doesn’t exceed the costs of advanced education (as defined in title 10 of the U.S. Code) at the academy.") means that you pay the tax on earnings but not the 10% penalty up until the total cost of attendance. Line 6 reverses the penalty imposed on Line 5 of 5329 and means that Line 6 of Schedule 2 should be 0. I still think this is a miss in Turbotax.
