I have no personal experience, but I have seen previous posts discussing this topic. The law does provide a special condition for Service Academy students and the ten percent tax on payments from a Qualified Tuition Program or Coverdell Education Savings Account that are not used for educational expenses does not apply to attendees of the U.S. Military, Naval, Air Force, Coast Guard or Merchant Marine Academies, to the extent the payments do not exceed the costs of advanced education. Effective for tax years after 2002.
What another parent did after speaking with an accountant...
"...divided the amount of the "scholarship" by 8 (semesters) and disbursed that amount twice a year to use for various expenses.
For USMMA you could divide by 12 and withdraw 3 times a year. I have seen $280,000 floated around as the value of the appointment, but I suspect that a call to the academy would provide a better value. So in theory, you could withdraw up to $23,333 every 4 months and not worry about the ten percent tax issue.