Still Haven't Taken Your 2025 RMD? Here's What You Need to Do.

Individuals who turned 73 in 2025 must take their first required minimum distribution (RMD) by April 1, 2026, calculated using account balances as of Dec. 31, 2024 and the Uniform Lifetime Table (age-73 divisor = 26.5; e.g., $100,000/26.5 ≈ $3,774). Those who delay will need to take two RMDs in 2026, while taxpayers who were 74 or older in 2025 and missed their RMD face a 25% penalty on the missed amount (reducible to 10% if corrected within two years) and should file Form 5329 and may request a waiver for reasonable error. Advisors should alert affected clients to act promptly and consult tax professionals to minimize penalties and tax consequences.

Analysis

Market structure: RMD mechanics concentrate withdrawals at specific ages (e.g., age‑73 divisor 26.5 → ~3.8% withdrawal rate) so aggregate forced supply is modest per account but highly time‑concentrated around Apr 1 and Dec 31. Direct beneficiaries: broker/dealer processing, tax‑prep and annuity issuers that capture rollovers or QCDs; direct losers: liquid, low‑cost growth holdings that retirees prefer to sell first (smaller caps, nondividend tech). Expect transient price pressure in retail‑held, low‑liquidity segments rather than broad market collapse.

Risk assessment: Short‑term tail risks include a market drop triggering larger realized selling and IRS enforcement ambiguity that creates panic liquidations; regulatory change (RMD reform) is low probability but high impact. Immediate timeframe: Feb–Apr 2026 (first‑RMD window) and year‑end 2026 (two RMDs for recent 73s) matter most; medium/long term: steadily rising RMD percentages as cohorts age will steadily increase outflows by basis points to low single digits of AUM annually. Hidden dependencies: QCDs, Roth conversions and state tax rules can materially offset forced equity sales; watch fund flow and broker custody reports for early signals.

Trade implications: Look for short, concentrated relative weakness in small‑cap/growth names; liquidity and options vol should spike around deadlines. Execute directional and hedged trades into the flow windows (enter mid‑March, cover after Apr 15 unless flow persists); harvest option premia on large caps via covered calls and buy protective put spreads on IWM for tail protection. Fees/processing winners (NDAQ) should see incremental revenue; evaluate 3‑month catalysts rather than multi‑year thesis.

Contrarian angles: Consensus expects indiscriminate selling; reality may be muted because many retirees use non‑equity sources (cash, bonds) or use QCDs/Roth moves — so small‑cap weakness can be overdone. Historical parallels: tax‑loss selling windows routinely produce mean‑reverting dislocations within 6–12 weeks. Unintended consequence: aggressive RMD selling could create buying opportunities in high‑quality dividend and AI‑exposed names (NVDA, INTC) if sellers hit margin‑sensitive, illiquid positions first.

Key Decisions for Investors

• Establish a 2–3% long position in NDAQ (Nasdaq: NDAQ) by Mar 20, 2026 to capture incremental processing/trading fee flow from Apr 1 RMD activity; target 6–12% upside over 3 months, stop loss 8% if flows do not materialize.
• Reduce net exposure to small‑cap/growth ETF IWM by 2–4% of NAV between Feb 20–Mar 20, 2026 (sell into pre‑RMD rebalancing) and redeploy into large‑cap dividend ETFs (SPY or VOO) to lower volatility and tax‑sensitivity; expect 100–300 bps relative outperformance in Apr 2026 if flows follow pattern.
• Buy an IWM Apr 2026 5% OTM put / 3% OTM put vertical (size ~0.5% NAV) entering by Mar 15 to hedge concentrated near‑term downside into Apr 1; cap cost and keep through Apr 30 unless volatility contracts and spreads tighten >50%.