Why Rebalancing Your 401(k) Before Year-End Matters

Simple steps now can strengthen retirement later.

As the year progresses, it’s easy to let your retirement savings run on autopilot. You contribute regularly, your employer may add a match, and your investments grow (or fluctuate) with the markets. But without a periodic check-up, your 401(k) can drift away from your long-term strategy.

That’s why many advisors recommend reviewing — and if necessary, rebalancing — your 401(k) before year-end. It’s a simple step that can help keep your retirement plan on track and aligned with your goals.

What Is 401(k) Rebalancing?

When you first set up your retirement account, you probably selected a mix of investments based on your age, risk tolerance, and long-term goals. Over time, some investments may perform better than others. For example, if stocks have had a strong year, they could now make up a much larger portion of your portfolio than you originally intended.

Rebalancing is the process of realigning your portfolio back to your target allocation. In practical terms, that may mean selling some of what has grown too large and buying more of what has fallen behind.

Why Rebalancing Matters

• Keeps Risk in Check: A portfolio that’s become too heavily weighted toward stocks might carry more risk than you’re comfortable with — especially if retirement is approaching. Rebalancing helps you stay aligned with your chosen risk level.
• Supports Long-Term Discipline: Rebalancing may force you to sell high and buy low, which is the opposite of what emotions often drive investors to do. It helps you stick to a long-term plan rather than chasing short-term performance.
• Prepares You for the New Year: Reviewing your allocation before December 31 also gives you the opportunity to adjust contribution amounts, make catch-up contributions if you’re over 50, and confirm your savings strategy is still on track.

Contribution Limits to Keep in Mind

The IRS sets annual contribution limits for 401(k)s, and they can change each year. For 2025, you can contribute up to $23,500 to your 401(k). If you’re age 50 or older, you can contribute an additional $7,500 in catch-up contributions¹.

If you haven’t yet maxed out your contributions, rebalancing season is also a good reminder to see if increasing contributions fits your budget.

Don’t Forget the Bigger Picture

Rebalancing is just one part of end-of-year financial prep. This is also a good time to:

• Review beneficiaries on your retirement accounts.
• Check whether your contributions align with your broader tax strategy.
• Consider how upcoming changes in tax law — including provisions set to shift in 2026 — may affect retirement planning.

Because tax rules can change, it’s always wise to verify contribution strategies and deductions with a qualified advisor before making adjustments.

Final Thoughts

Your 401(k) is one of the most powerful tools you have for building long-term wealth. A periodic rebalance helps ensure your savings reflect both your goals and your comfort with risk — not just the latest market moves.

Want help reviewing your retirement plan? Schedule a consultation with a OneDigital advisor today. We’ll help you navigate the complexities of saving for the future with confidence and clarity.

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Sources:
1. IRS Revenue Procedure 2024-25 – 401(k) Contribution Limits

Investment advice offered through OneDigital Investment Advisors LLC.
This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.
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