We’re 78 and Want to Use Our 2026 RMD to Treat Our Kids and Grandkids to a Vacation. How Should We Approach This?

At 78, you’ve already cleared the first Required Minimum Distribution (RMD) hurdle years ago. The distributions are mandatory, the tax bill is coming regardless, and now you’ve decided to do something meaningful with the money: take your family on a vacation together. The question isn’t whether to spend it this way. The question is how to do it without creating avoidable tax headaches.

This scenario comes up regularly among retirees. A thread on Reddit’s r/retirement captures the spirit well: users discussing using RMDs for “bucket list cruises and travel” note that the RMD is a taxable event regardless of what you do with the money afterward, and spending it on experiences rather than reinvesting it in a taxable account is a perfectly rational choice.

What You’re Actually Working With

1. Age and RMD status: At 78, you’ve been taking RMDs for at least five years. The IRS Uniform Lifetime Table assigns a life expectancy factor of 22.0 at age 78, meaning your RMD is calculated by dividing your prior year-end account balance by that factor.
2. Tax treatment: Every dollar of your RMD is taxed as ordinary income in the year you take it, regardless of how you spend it.
3. Family size: Two children with spouses and six grandchildren means a group of ten, putting realistic vacation costs in the $15,000 to $40,000 range.
4. Gift tax consideration: The 2026 annual gift tax exclusion is $19,000 per recipient, meaning a married couple can give up to $38,000 per recipient without any gift tax filing requirement.
5. What’s at stake: Sequencing the vacation payment correctly can avoid unnecessary gift tax paperwork and keep your Medicare premiums from spiking due to IRMAA surcharges.

The Tax Reality Before You Book

Your RMD lands on your tax return as ordinary income. At 78, you’re most likely filing jointly with Social Security income, possibly a pension, and now the RMD stacked on top. For 2026, the federal tax brackets for married filing jointly place income from roughly $100,800 to $211,400 in the 22% bracket, with income above $211,400 taxed at 24%. Those thresholds come directly from IRS Revenue Procedure 2025-32, so you can plug your own numbers in with confidence.

The bigger risk, and one that catches many retirees off guard, is Medicare’s Income-Related Monthly Adjustment Amount, known as IRMAA. Medicare uses your income from two years prior to set your Part B and Part D premiums. That means 2026 income determines your 2028 premiums. For joint filers, the IRMAA surcharge kicks in once modified adjusted gross income exceeds $218,000, at which point total monthly Part B premiums begin climbing above the standard $202.90. A large RMD that pushes you across that threshold can add hundreds of dollars per month per person to your Medicare bill for an entire year. If your combined income is already close to the boundary, check the numbers carefully before finalizing the vacation budget.

On the cost side, services inflation covering hotels, flights, restaurants, and attractions has remained elevated in 2026. If you’ve been mentally pricing a trip based on what things cost two years ago, build in a meaningful cushion. Travel vendors have not been shy about passing higher costs through to consumers.

Three Ways to Structure the Vacation Payment

1. Pay for everything directly. Book and pay for flights, accommodations, and activities yourself. The RMD is already taxable income to you, and covering family expenses is not a taxable gift as long as you pay service providers directly rather than handing cash to your children. This is the cleanest approach and avoids any gift tax paperwork entirely.
2. Reimburse family members for their costs. If adult children book their own travel and you reimburse them, those reimbursements are technically gifts. At $19,000 per person in 2026, you and your spouse can together give $38,000 to each recipient without filing a gift tax return. For a family vacation among ten people, you’ll almost certainly stay well under any threshold, but keeping records is smart practice regardless.
3. Take a larger RMD and fund a separate vacation account. Some retirees take a slightly larger distribution early in the year and park the after-tax proceeds in a high-yield savings account. With the 10-year Treasury yield near 5% as of mid-September 2026, short-term cash is actually earning something meaningful while you plan and wait. The tradeoff is accelerating taxable income into a single year. For most 78-year-olds, taking a bit more than the required minimum is unlikely to cause material harm, but check your IRMAA exposure first.

Option one is the clear winner for most people in this situation. Paying vendors directly is simple, clean, and requires zero additional tax documentation.

What to Do Before You Book

1. Run your 2026 income estimate first. Add your expected Social Security, any pension or investment income, and your projected RMD. Check whether the total crosses an IRMAA threshold. If you’re close to a bracket boundary, consider whether spreading the trip costs across two tax years could soften the income spike in either one.
2. Book and pay vendors directly. Put flights, hotels, and excursions on your card. This keeps the transaction clean, avoids gift tax questions, and often earns travel rewards you can apply to future trips.
3. Don’t let the tax tail wag the dog. The RMD is taxable income no matter what you do with it. Spending it on a memory your grandchildren will carry for decades is a sound financial decision. The goal is simply to avoid unnecessary IRMAA exposure and any sloppy reimbursement arrangements that generate gift paperwork. Beyond those guardrails, enjoy the trip.

Editor’s note: This article corrects the upper boundary of the 2026 married filing jointly 22% tax bracket from $201,600 to $211,400 (per IRS Revenue Procedure 2025-32), updates the 10-year Treasury yield from approximately 4.3% to approximately 5% reflecting September 2026 market levels, and adds the specific 2026 IRMAA income threshold of $218,000 for joint filers along with the standard Part B premium of $202.90 per month.

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