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 arrives regardless of what you do with the money, and you’ve decided to spend it on something meaningful: a family vacation. The real question isn’t whether to do this. It’s how to structure the spending so you don’t create avoidable tax headaches for yourself in the process.

This scenario comes up regularly among retirees. Discussions in communities like Reddit’s r/retirement often make the same point: an RMD is a taxable event no matter what you do with the proceeds, so spending it on shared 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 distribution period of 22.0 at age 78, meaning your RMD equals your prior year-end account balance divided 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 afterward.
3. Family size: Two children with spouses and six grandchildren puts your group at ten people, which places realistic vacation costs in the $15,000 to $40,000 range depending on destination and duration.
4. Gift tax consideration: The 2026 annual gift tax exclusion is $19,000 per recipient per donor. Each spouse can give $19,000 to the same person independently, but reaching that combined $38,000 per recipient requires a gift-splitting election filed on IRS Form 709.
5. What’s at stake: Structuring 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 taxable 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.

The bigger risk, and one that catches many retirees off guard, is Medicare’s Income-Related Monthly Adjustment Amount, known as IRMAA. Here’s how the timing works: Medicare uses your income from two years prior to set your current premiums, so your 2024 income determines what you pay for Part B in 2026. By the same logic, the income you report on your 2026 tax return will set your 2028 premiums. For joint filers, the IRMAA surcharge kicks in once modified adjusted gross income exceeds $218,000, at which point your monthly Part B premium jumps above the standard $202.90. A large RMD that pushes you across that boundary 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 that line, run the numbers carefully before finalizing the vacation budget.

On the cost side, services inflation covering hotels, flights, restaurants, and attractions has remained elevated. With the 10-year Treasury yield running above 5% in October 2026, near its highest level in roughly two decades, short-term cash is earning something meaningful. If you’ve been pricing a trip based on what things cost a couple of years ago, build in a real 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 by paying vendors directly is not treated as a taxable gift to your children. This is the cleanest approach: no gift tax forms, no reimbursement records to keep, no complications. For most families in this situation, it’s the right default.
2. Reimburse family members for their costs. If adult children book their own travel and you reimburse them afterward, those payments are technically gifts. Each of you can give up to $19,000 per recipient in 2026 without filing anything. To gift-split and combine both spouses’ exclusions for a single recipient, reaching $38,000 per person, you need to file Form 709 to make the gift-splitting election. For a group vacation spread across ten people, you’ll almost certainly stay well below any threshold, but keeping clean records is good practice regardless.
3. Take a slightly larger RMD and set aside the funds early. Some retirees take a bit more than the required minimum early in the year and park the after-tax proceeds in a high-yield savings account while trip logistics come together. With short-term yields holding above 4%, that cash earns something real while you plan. The tradeoff is concentrating more taxable income into one calendar year. For most 78-year-olds, taking modestly above the minimum is unlikely to cause material harm, but check your IRMAA exposure before adding to your distribution.

Option one wins for most people in this situation. Paying vendors directly is simple, clean, and requires zero additional paperwork.

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 the $218,000 joint boundary, consider whether spreading costs across two tax years could help, and talk to your tax advisor before finalizing the trip budget.
2. Pay vendors directly. Put flights, hotels, and excursions on your card or pay by check made out to the vendor. This keeps the transaction clean, sidesteps any gift tax questions entirely, 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 happens to it. Spending it on a trip your grandchildren will remember for decades is a sound use of money that was already going to the IRS in part. The goal is to avoid unnecessary IRMAA exposure and any messy reimbursement arrangements that require gift paperwork. Beyond those guardrails, the planning should be fun.

Editor’s note: This pass corrects a key gift tax detail: using both spouses’ annual exclusions to give $38,000 per recipient requires filing IRS Form 709 for the gift-splitting election, not merely writing a check. The 10-year Treasury yield reference was also updated from “near 5% as of mid-September 2026” to “above 5% in October 2026,” reflecting current yield levels around 5.2%. An explicit clarification was added that 2026 IRMAA premiums are determined by 2024 income, while a large 2026 RMD will affect 2028 premiums.

Contact [email protected] for any questions or corrections.