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 Requited Monthly 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 shows 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 almost certainly filing jointly with Social Security income, possibly a pension, and now the RMD stacked on top. The 2026 federal tax brackets for married filing jointly place income from roughly $100,800 to $201,600 in the 22% bracket, and income above that in the 24% bracket.

The bigger, often-overlooked risk is Medicare’s Income-Related Monthly Adjustment Amount, known as IRMAA. Medicare uses your income from two years before set your Part B and Part D premiums. A large RMD in 2026 could raise your 2028 Medicare premiums by hundreds of dollars per month per person. If your combined income is already close to a threshold, check whether your RMD pushes you into the next IRMAA bracket before finalizing the vacation budget.

Services inflation, which covers hotels, flights, restaurants, and attractions, is running at about 3% year-over-year as of early 2026. Vacation costs are rising faster than headline inflation, which is sitting at nearly 3%. If you’ve been mentally budgeting based on a trip you priced two years ago, budget for meaningfully higher costs than what you priced two years ago.

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 paying family expenses is not a taxable gift as long as you’re paying 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 together can give $38,000 to each recipient without filing a gift tax return. For a family vacation, you’ll almost certainly stay well under any threshold, but keeping records is smart.
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 4.3%, short-term cash is actually earning something meaningful while you wait. The tradeoff is accelerating taxable income, but for most 78-year-olds, taking a bit more than the minimum is unlikely to cause material harm. 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 paying for the trip in installments across two tax years could reduce the income spike in any single year.
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 perfectly sound financial decision. The goal is to avoid unnecessary IRMAA exposure and sloppy reimbursement arrangements that create gift paperwork. Beyond those, enjoy the trip.