Your Year-End Financial Checklist: 5 Things to Tackle Before 2027

Key Takeaways

• Rebalance to keep your portfolio’s risk level in check.
• Start with tax-sheltered accounts when rebalancing, and watch for mutual fund capital gains distributions.
• Use required minimum distributions to trim investments you were already looking to sell.
• Consider tax-smart charitable giving strategies for appreciated investments.
• Build up cash reserves and revisit your retirement contributions for the year ahead.

Valentina Djeljosevic: Hi, I’m Valentina Djeljosevic for Morningstar. We’re in the home stretch of 2026, and Christine Benz is here with a roundup of financial jobs for you to tackle between now and the end of the year. Christine is the co-host of The Long View podcast and the author of How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. Christine, thanks for being here.

Christine Benz: Valentina, it’s great to see you.

How to Rebalance Your Portfolio Before Year-End

Djeljosevic: Let’s start with rebalancing your portfolio. What are the benefits and key considerations for investors as they reposition their portfolios toward the end of the year?

Benz: Yeah, the benefits are that rebalancing is a good way to take risk out of your portfolio because the contents of your portfolio will shift around over time, depending on how the various components have behaved and how they’ve performed. In normal market cycles, your riskier assets, especially stocks, are going to take up a bigger and bigger share of your portfolio. Meanwhile, most of us are using our investments for some type of goal. Retirement is the main one for most people. With your retirement portfolio, you generally want to be taking some risk off the table as you age and as you get closer to needing your money. That’s the basic intuition behind rebalancing; it is a way to take risk out of your portfolio.

I would argue it’s especially important today for older adults, people who are, say, over age 50 and getting closer to retirement, because the path of least resistance for a lot of these folks, for all of us investors, has really been to let our equity winners ride. If we haven’t done any rebalancing for a few years, equities are taking up a bigger and bigger share of our portfolios. I was looking, actually, at a 60/40 portfolio five years ago that would now be about three-quarters equity today. Even if you hadn’t taken steps to add to your equities, they’ve just grown larger. So, older adults should be thinking about taking some equity risk out of their portfolio, taking advantage of those nice higher bond yields that we see today.

Even for younger investors, they probably want to peer into their portfolios and look at their equity exposure and the complexion of that equity exposure. If you’re a younger person with many years until retirement, you still do want most of your retirement assets and stocks, but just look at the complexion of that portfolio, make sure that you aren’t overly tilted toward things that have done very well in the recent past. Over the past five years, US large-growth stocks have really outperformed at the expense of almost everything else. We’ve seen a little bit of evening out recently, but it’s still a risk factor, I think, for a lot of portfolios that it pays to check out what the complexion of your equity portfolio looks like today.

How to Manage Taxes When Rebalancing Your Portfolio

Djeljosevic: As 2026 winds down, it’s a good time to pay attention to tax issues. What should investors have on their radar?

Benz: Yeah, so let’s stick with rebalancing for a minute because it’s super important to pay attention to where you rebalance. You generally want to start with your tax-sheltered accounts. If you find your portfolio is out of balance, look to those IRAs, 401(k)s, see if you can move the needle toward your target asset allocation by focusing on those tax-sheltered accounts. You generally don’t want to do that inside your taxable accounts—rebalancing inside your taxable accounts—because selling those appreciated securities is typically going to translate into a tax bill. See if you can’t move the needle with rebalancing within your tax-sheltered accounts.

Also, if you’re a mutual fund shareholder, especially if you own actively managed mutual funds, you do want to keep an eye on these mutual fund capital gains distributions that we’ve been seeing. They’re an outgrowth of a couple of things. One, great market performance means that many funds have capital gains on their books. And then we have this simultaneous trend of investors fleeing actively managed funds, moving into inexpensive index funds and exchange-traded funds, overall a healthy trend. But if you’re a shareholder who is sticking it out in some of these actively managed funds, the net effect is that for the past several years, many mutual fundholders have gotten clobbered.

Pay attention to estimated capital gains that are coming your way. Funds typically begin publishing their estimates in the fourth quarter, typically in November. The payouts often happen in December. There’s not a lot you can do about them taxwise because oftentimes if you think that you want to sell out of a fund to dodge capital gains distribution, well, you might trigger your own tax bill because the taxes that you’ll owe when you make that sale will depend on your purchase price relative to your sale price. Chances are, unless you’re super unlucky, you’ve had some appreciation in your equity holdings, and you will trigger a tax bill even as you’re trying to dodge that capital gains distribution. But nonetheless, it’s something to be aware of because there are real tax impacts.

Year-End RMD and QCD Strategies for Retirees

Djeljosevic: Now we’ve been talking about investors in general, but let’s turn our attention to retirees in particular. What should be on their year-end checklist? I have a feeling we’re about to discuss some very important abbreviations.

Benz: Yeah, that’s right. Two big ones for retirees to have top of mind as the year winds down: One is required minimum distribution, so you need to take those distributions if you’re over age 73 from tax-sheltered accounts; traditional tax-deferred accounts, not Roth accounts. You have to take those by year-end. We have seen some changes in the penalties that are levied on missed required minimum distributions, but they’re still high. There’s no reason to monkey around with them. Look at how much you have to take out of those tax-deferred accounts. I always say try to add a little bit of portfolio rebalancing to this exercise. If you have to take your RMD, figure out how much you need to take, and then look at your portfolio—this gets back to rebalancing—consider pruning those required minimum distributions from the securities that you wanted to sell otherwise. Maybe it’s a concentrated position in your portfolio or maybe it’s part of that appreciated equity position that we are talking about. Consider doing your trimming from those areas, pull your RMDs from those areas, and improve your portfolio at the same time. That’s something to think about for RMD takers.

Another acronym is the QCD, the qualified charitable distribution. There’s a little bit of an age disconnect. The RMD applies to people who are over age 73. The QCD is available if you’re over age 70½. The beauty of the QCD is that it’s a way to give to charity and lower your tax bills. You’re giving pieces of your IRA, typically your traditional tax-deferred IRA, to charity. The limits on QCDs have been edging up in keeping pace with inflation. It’s $111,000 that you can give to charity via the QCD. It will tend to be more attractive for people who are over age 70½ than taking securities out of their portfolio, selling securities, writing a check to charity, and then deducting that charitable contribution. The QCD is pretty close to a no-brainer for charitably inclined older adults.

Tax Considerations for Charitable Giving in 2026

Djeljosevic: Let’s stay on that topic of charitable contributions. Besides the QCD, what should we know about the tax implications of giving to charity in 2026?

Benz: Yeah, so we’ve been talking about the attractiveness of selling appreciated securities, maybe taking some risk out of your portfolio. A great strategy for people to consider if they have those highly appreciated positions, especially the ones that are adding extra risk to their portfolio. Maybe the individual stock that has performed beyond your wildest dreams. Those are wonderful securities to earmark for charity via what’s called a donor-advised fund. The idea is that you donate those securities to your donor-advised fund, you eliminate the capital gains that would otherwise be due on the sale of those positions, and you’re able to receive a deduction on the contributed amount. It’s really a valuable strategy for people to consider. A couple of other things I would mention on the charitable front, Valentina, is that there is a deduction that’s available for people who don’t itemize their deductions on their tax returns.

It’s not huge. It’s $1,000 for individual filers, $2,000 for married couples filing jointly. That’s something to consider nonetheless because we have a lot of people who are not itemizing on their tax returns. They’re taking the standard deduction. It’s a way for them to get at least some credit for their cash contributions. That’s something to consider. I would also note that we now have a floor on the charitable contributions that you can deduct. Your charitable contributions need to be over half a percent of your adjusted gross income in order for you to deduct them on your tax return. That’s something to keep in mind for smaller givers who are also itemizing their deductions.

Djeljosevic: That’s a lot to consider.

Benz: There’s a lot.

How to Prepare Your Finances for 2027

Djeljosevic: We are going to do an episode on just taxes, so I’m glad about that. But first, before we close, you’ve said that this is a great time for investors to set themselves up for success for the coming year. What are some ways they can do that?

Benz: Yeah, two main things. Starting with retirees, I would say think about teeing up your cash reserves, your anticipated portfolio spending for the next couple of years. This is the Bucket approach that I often talk about. I like the idea of earmarking one to two years’ worth of anticipated portfolio withdrawals in cash. That way, you’re not having to worry about where you’re going for your living expenses on the fly. It’s already there. I think that will give you a little bit more peace of mind with your spending. You know that those cash reserves are set aside to meet your living expenses.

For people who are still working and saving for retirement, look at where you are contributionwise, in terms of funding those tax-sheltered accounts for the 2026 year. Dec. 31 is your deadline to make those contributions for this year to your 401(k). You have actually until the tax filing deadline in April to fund an IRA and an HSA, but see how you’re doing. You may have an opportunity to turbocharge those contributions in the late innings of 2026, but also peer forward because we typically see some inflation adjustments come online that allow us to contribute more to our tax-sheltered accounts for the year ahead. Make those adjustments as the year winds down so that you’re putting yourself in a position to contribute as much as you possibly can into those tax-sheltered accounts for 2027.

Djeljosevic: Thank you, Christine, for helping us get started with our year-end financial checklist.

Benz: Thank you so much, Valentina.

Djeljosevic: For practical financial guidance and insights throughout the year, subscribe to Christine’s newsletter. And when you are ready to get started on your year-end financial checklist, visit morningstar.com. Thanks for watching.