Can I Use My RMD to Fund a 529 Plan?

For many individuals navigating their retirement years, understanding how various financial vehicles interact is a common concern. Specifically, questions often arise regarding the relationship between Required Minimum Distributions (RMDs) from retirement accounts and contributions to 529 college savings plans. This exploration aims to clarify whether and how funds from RMDs can be directed toward education savings, shedding light on the mechanics and tax implications involved in such a financial strategy.

Required Minimum Distributions Overview

Required Minimum Distributions (RMDs) represent annual withdrawals that individuals must take from most tax-deferred retirement accounts once they reach a specific age. These accounts typically include traditional Individual Retirement Arrangements (IRAs), 401(k)s, 403(b)s, and 457(b) plans. The primary purpose of RMDs is to ensure that the government eventually collects taxes on the savings that have grown tax-deferred over many years.

The age at which RMDs must begin has changed due to recent legislation. For those who reached age 73 in 2023 or later, RMDs generally commence at age 73. This age will further increase to 75 for individuals born in 1960 or later, effective January 1, 2033. The first RMD must be taken by April 1 of the year following the year an individual reaches the applicable age, while all subsequent RMDs must be taken by December 31 of each year.

Failure to take the full RMD amount by the deadline can result in a significant penalty. The Internal Revenue Service (IRS) imposes an excise tax of 25% on the amount not distributed. This penalty can be reduced to 10% if the missed RMD is corrected within a specified two-year window. It is important to note that Roth IRAs are generally exempt from RMDs during the original owner’s lifetime, as contributions to these accounts are made with after-tax money.

529 College Savings Plans Overview

A 529 college savings plan is a tax-advantaged investment vehicle designed to help families save for future education expenses. These plans are sponsored by states or educational institutions and offer various investment options. Contributions to a 529 plan are typically made with after-tax dollars, meaning they are not federally tax-deductible.

One of the main benefits of a 529 plan is that earnings grow tax-deferred, and qualified withdrawals are entirely tax-free at the federal level. Many states also offer similar tax benefits, such as tax-free withdrawals for qualified expenses. Funds from a 529 plan can be used for a broad range of qualified education expenses, including tuition, fees, books, and supplies.

Qualified expenses also encompass room and board for students enrolled at least half-time, computers, and internet access. Furthermore, 529 plans can cover up to $10,000 per year in K-12 tuition expenses per student, and as of July 4, 2025, additional K-12 expenses like curriculum, books, and tutoring are also considered qualified. The plans can also be used for expenses related to registered apprenticeship programs and, with a lifetime limit of $10,000 per individual, for student loan repayment.

Funding a 529 with RMDs

The question of using Required Minimum Distributions (RMDs) to fund a 529 college savings plan is frequently asked by retirees seeking to support a loved one’s education. It is important to understand that an RMD cannot be directly transferred tax-free from a retirement account into a 529 plan.

Instead, the process involves two distinct steps. First, the individual must take their RMD from their retirement account. This withdrawal is a taxable event, and the amount distributed is included in the individual’s gross income for the year. The funds then become available as cash in the individual’s possession.

After the RMD has been received and the associated taxes are accounted for, the individual can then use that cash, or any other available funds, to make a contribution to a 529 plan. This two-step approach ensures compliance with tax regulations, as the RMD is recognized as taxable income before funds are redirected. This method allows individuals to utilize RMDs to support educational goals.

Tax Implications of Using RMDs for 529s

When RMD funds are used to contribute to a 529 plan, the distribution from the retirement account increases the individual’s adjusted gross income (AGI). This can potentially elevate their overall federal income tax liability for that year. Contributing these funds to a 529 plan does not provide a federal income tax deduction.

Despite no federal deduction, many states offer a state income tax deduction or credit for contributions to 529 plans. These state-level benefits can apply to contributions made with RMD funds, potentially reducing an individual’s state tax burden. State tax benefits are often contingent on contributing to an in-state 529 plan, though some states offer tax parity, extending benefits to contributions made to any state’s plan.

Once the funds are contributed to the 529 plan, they benefit from tax-deferred growth. When withdrawals are made from the 529 plan for qualified education expenses, both the principal and the earnings are distributed tax-free at the federal level, and often at the state level as well. This tax-free growth and withdrawal for qualified expenses represent a significant long-term advantage of funding a 529 plan, even if the initial RMD is taxed.