One of the most effective strategies I’ve found is using RMD dollars to fund 529 college savings plans. Yes, RMDs are taxable as ordinary income at the federal level. But once those dollars are in your hands, you can redirect them into a vehicle that creates longer-term tax advantages not only for you, but for your family.

More than 30 states offer tax deductions or tax credits for contributions to a 529 plan. The exact benefit depends on your state’s rules and whether you file as single or married. Some states offer “parity,” which means you can receive a deduction or credit even if you invest in a 529 plan from another state. In those cases, the flexibility is tremendous: you can take your RMD, pay the federal tax, and then turn around and claim a state-level benefit for choosing to contribute to a 529.

The real power of this strategy is what happens next. Contributions to a 529 plan grow tax-free. Withdrawals used for qualified education expenses are also tax-free. That means once RMD dollars get into a 529, they’re essentially sheltered from future taxation. For grandparents like me, this creates an elegant combination of legacy planning and tax efficiency. Instead of letting RMDs increase my taxable income without any meaningful purpose, I can use them to invest directly in my grandchildren’s education.

In some cases, you can even accelerate your planning. The IRS allows you to “frontload” up to five years’ worth of contributions into a 529, which can be a powerful estate-planning tool. By doing so, you remove assets from your taxable estate while still maintaining control over the account. It’s one of the rare opportunities where you can reduce future estate taxes, benefit from tax-free growth, and give a meaningful gift all at the same time.

For retirees looking to align their RMD strategy with their family values and long-term planning goals, using RMDs to fund 529 plans is one of the most tax-efficient ways to do it. It turns a mandatory withdrawal into something purposeful: supporting education, strengthening your legacy, and taking advantage of tax benefits that would otherwise go unused.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.

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