Your 2027 RMD Is Locked In by Your Account Balance on December 31, 2026. If the Market Falls 15% in January You Still Owe the Larger Number, and Retirees Who Expect a Drop Take the Withdrawal in Shares Instead of Cash
A January market crash cannot shrink your RMD, because the IRS locked that number in on December 31, but retirees who know one overlooked move can turn a falling market into a tax advantage instead of a tax bill.
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Every December 31, your traditional IRA locks in a record of its value. Whatever the account is worth at the close of business that day sets the size of next year’s required minimum distribution (RMD), and nothing the market does afterward changes that figure.
That rule can turn a January selloff into a tax problem. If stocks fall 15% in the first weeks of 2027, you still owe an RMD based on your larger 2026 balance. Retirees who see that risk coming have a better option than selling into the drop: they take the withdrawal in shares.
December 31 Sets Your 2027 RMD Even If the Market Crashes
The rule comes from Treasury regulations. The RMD is based on the IRA balance “as of December 31 of the calendar year preceding the calendar year for which distributions are required,” and “no adjustments are made” for what happens later, per 26 CFR 1.408-8(b)(2). The worksheet in IRS Publication 590-B gives the same formula: take the value of the IRA at the close of business on December 31 and divide it by your applicable denominator.
That denominator comes from the Uniform Lifetime Table: 26.5 at age 73, 25.5 at 74 and 24.6 at 75. Under SECURE 2.0, RMDs start at age 73 for anyone born on or after January 1, 1951, and a later provision moves the start to age 75 for younger retirees.
How a 15% January Drop Costs a $1 Million IRA Owner an Extra $6,098 in Taxable Income
Consider an hypothetical 75-year-old who is single, or married to a spouse no more than 10 years younger. On December 31, 2026, the traditional IRA holds $1 million.
| Item | Amount |
|---|---|
| IRA balance, December 31, 2026 | $1,000,000 |
| Divisor at age 75 | 24.6 |
| 2027 RMD due | $40,650 |
| Balance after a 15% January drop | $850,000 |
| RMD if the drop mattered | $34,553 |
| Extra income forced by the record | $6,098 |
In a normal year, the RMD takes about 4.07% of the account. After the drop, that same $40,650 eats up 4.78% of what’s left. If the retiree is in the 22% bracket, the extra $6,098 adds about $1,341 in federal tax. For reference, the 2026 brackets apply 22% to taxable income over $50,400 for single filers and $100,800 for married couples filing jointly.
Skipping the withdrawal costs far more. Under 26 U.S.C. § 4974(a), the excise tax is 25% of the shortfall, about $10,163 if the entire RMD is missed. That rate drops to 10% if you fix the miss within the correction window in § 4974(e).
Why Taking the RMD in Shares Beats Selling Into a Slump
Most custodians will meet an RMD by moving shares from the IRA into a taxable brokerage account, a process called an in-kind distribution. The shares mattered at their fair market value on the transfer date, and that value is taxed as ordinary income, just like cash. Your cost basis in the moved shares equals that same value.
Two advantages follow. First, you never sell at the bottom. The shares stay invested in your taxable account and capture any rebound.
Second, the timing can create a loss you can use. Say the retiree moves $40,650 of an index fund in the first trading days of January, and the fund then falls 15%. The shares are now worth $34,553, a $6,098 capital loss available to claim. Net capital losses offset up to $3,000 of ordinary income a year, and the rest carries forward. That loss about matches the extra income the December 31 record forced.
Taking cash in early January also avoids the drop, but it leaves the money out of the market for the recovery. Watch the wash-sale rule, too: if you sell shares at a loss in a taxable account and an IRA purchases substantially identical shares within 30 days before or after the sale, the loss is disallowed and can’t be added to the IRA’s basis.
Three Moves to Make Before December 31, 2026
- Run the RMD math for each account. You must figure the required distribution separately for each IRA, but you can take the total from one IRA or several.
- Plan for withholding. Custodians generally withhold 10% from nonperiodic IRA payments unless you opt out on Form W-4R. With an in-kind transfer, cover the tax with outside cash or estimated payments so you don’t have to sell shares to pay it.
- Watch the first-year double-up. Your required beginning date is April 1 of the calendar year following the year you reach the applicable age. If you turn 73 in 2026 and moves your first RMD into 2027, both RMDs mattered as 2027 income.
The record rule eventually works in your favor. If a January drop doesn’t recover by year-end, your December 31, 2027 balance will be smaller, and your 2028 RMD will shrink with it. Lining up in-kind timing, claim losses and your bracket is the kind of math worth running with a tax professional or trusted advisor before year-end (we put the fuller strategy for avoiding a big first-year RMD tax bill, years before it lands, in a free guide here).
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
