Rahamägi was born on 2 June 1886 in Kurtna, Harju County in the Russian Empire, what is now present-day Estonia.

He earned his doctorate in 1920 from the University of Berlin while he defended his dissertation titled 1924 The Reasons for the Decrease of the Fertility of the Estonian People and the Way to Eliminate It.

[1] Rahamägi was ordained priest on 16 April 1914 in St. Mary's Cathedral, Tallinn.

He was appointed to serve as Minister for Education of Estonia in 1924 and retained the post till 1925.

Rahamägi was arrested by Soviet troops on 26 April 1941 and accused of abusing his powers to expand the church's influence on the Soviet state (Article 58-13 and 58-2 of the RSFSR Penal Code: "armed uprising or intervention with the goal to seize the power and Active struggle against revolutionary movement of tsarist personnel and members of "counter-revolutionary governments" during the civil war).