A 529 account (or 529 plan) is a tax-advantaged savings plan designed to encourage saving for future college costs. The different types and mechanics of 529 plans are best saved for another blog post. For now, the important thing to know is that there are three main benefits to using your RMDs to fund a 529 plan:
1. Earnings grow tax-free.
Usually, you have to pay income taxes on RMDs. If you then invest the RMD, you will likely pay a second round of taxes on those earnings down the road. On the other hand, if you contribute your RMD to a grandchild's 529 account, you will still pay income tax on the RMD, but the money you invest in the 529 account will grow tax-deferred. And if the money is later used for qualified education expenses, the entire amount is available tax-free.