New Year's RMD Checklist: Avoid Costly Mistakes Before Dec. 31, 2026

IRS rules require required minimum distributions (RMDs) from 401(k)s and most traditional IRAs beginning the year an owner turns 73, due annually by Dec. 31 (with an April 1 deadline for the first-year distribution). Failure to take the full RMD triggers a 25% penalty on the missed amount (reducible to 10% if corrected within two years or potentially waived for reasonable cause); Vanguard reports about 7% of its IRA holders missed RMDs in 2024, averaging penalties over $1,100 and estimating up to $1.7 billion in annual missed-RMD penalties. The piece also notes that qualified charitable distributions from IRAs can count toward RMDs without increasing taxable income.

Analysis

Market structure: Annual RMDs create predictable, seasonal cash outflows from tax-deferred accounts that benefit custodians, exchanges and large asset managers (higher custody fees, trading volumes). Expect winners: NDAQ (exchange fee/flow capture), BK/STT/BLK for custody/AUM servicing; losers are lower-cost retail brokers and small-cap equities that are easier to liquidate. Magnitude: RMD-driven flows are order of $100B+ annually and concentrate in Nov–Dec (first-RMD April 1 adds a secondary spike).

Risk assessment: Tail risks include a legislative change (Congress raising RMD age or restricting QCDs) or major operational failures at custodians producing class-action/penalties; both could re-route flows or spike costs. Time horizons: immediate (days–weeks) sees year-end liquidity/volume moves; 3–12 months reflects tax-law proposals and demographic shifts (+~10–20% retiring cohort by 2030); long-term (years) is secular as more assets migrate to IRAs. Hidden dependency: market returns change RMD base (market drops reduce RMD pressure), so rallies amplify required selling. Key catalysts: November–December trading volumes, SECURE Act follow-ups, Vanguard/large custodian disclosure of missed RMDs.

Trade implications: Direct: establish a tactical 2–3% long position in NDAQ (buy shares or Nov–Dec call spread) ahead of Oct 15–Nov 15 to capture year-end volume/fee uplift; pair trade: long NDAQ, short SCHW (SCHW) 1–2% to hedge fee compression in retail brokerage. Options: buy NDAQ Nov 3%–7% OTM call spreads sized to 0.5–1% portfolio risk; buy S&P 500 3% OTM Dec puts as insurance if forced selling intensifies. Rotate overweight exchanges/custody (NDAQ, BK, STT) and underweight retail brokers and small-caps into Nov–Jan window.

Key Decisions for Investors

• Buy a 2–3% strategic long position in NDAQ (Nasdaq) between Oct 15–Nov 15; alternatively purchase Nov 2026 call spreads (buy 1–2 strikes ITM, sell 1 strike OTM) sized to 0.5–1% portfolio risk to capture year‑end volume/fee uplift.
• Establish a pair trade: long NDAQ 2% vs short SCHW 1–2% (dollar-neutral exposure) to express exchange/custody fee capture vs retail broker fee compression; rebalance Jan 15–Feb 1 after first‑RMD deadline and review realized volumes.
• Buy downside protection: purchase S&P 500 Dec 2026 3% OTM puts sized to 0.5–1% portfolio value if daily equity outflows or realized selling exceeds +15% of 30‑day average flows; trim if realized selling <+5% by Dec 15.
• Overweight custody/asset-servicing banks (BK or STT) by 1–2% tactical allocation into Nov, sell/trim into Feb if quarterly reported fee revenue growth <+3% YoY; monitor legislative RMD proposals and Vanguard missed‑RMD disclosures within next 90 days as stop-loss/triggers.