2026 End of Year Financial Considerations
Financial Planning Considerations Before Year End:
The 4th quarter of the year is upon us and what should you consider doing before December 31st from a financial planning perspective?
Required Minimum Distributions:
If you are age 73, the required minimum distribution amount (RMD) is the minimum amount of money you must withdraw each year from your tax-deferred retirement accounts – such as IRAs, traditional 401(k)s and other retirement plan accounts (not Roth IRAs). These distributions are taxed as ordinary income.
Inherited IRA Required Minimum Distributions:
If you have inherited an IRA from a relative or friend, you also will have a required minimum distribution. Even from inherited Roth IRAs! If you inherited the IRA after 1/1/2020, you must fully empty the account within 10 years and at least take the minimum distribution amount annually. If you inherited the IRA prior to 12/31/2019, you can continue to take required minimum distributions over the course of your lifetime.
Qualified Charitable Distributions:
If you are charitably inclined, you take advantage of Qualified Charitable Distributions (QCDs). Starting at age 70 1/2, a QCD allows you to donate up to $111,000 per person (in 2026) from an IRA to an eligible charity. So, in short, you can fulfill your RMD tax-free by donating it to charity as a QCD instead of paying tax on the distribution.
Charitable Gifting:
Do you have appreciation stock, ETFs or mutual funds outside of a retirement plan account that you could use to make charitable gifts and you don’t qualify to make QCDs as described above? You may want to consider giving stock or investments. The reason to use appreciated investments is because you can give the gain to charity and avoid paying tax on the gain.
Pro Tip: use cash to buy the investment back in your account and you’ve just “stepped up the basis”. You’re in the same financial position with the investment and gave away the taxable capital gain.
Tax loss harvesting:
Review your investments in non-retirement accounts and if any position is at a loss, sell to capture the loss and write off on your taxes.
Pro Tip: buy a similar investment back the next day to retain the investment exposure.
Mutual Fund Capital Gain Distributions:
Mutual funds are notorious for paying capital gain distributions before year-end. The mutual fund company usually provides capital gain distribution estimates to shareholders in advance. If the capital gain distribution is estimated to be significant, check the unrealized gain on your mutual fund and consider selling to avoid the distribution. ETFs (exchange traded funds) are more tax efficient in non-retirement accounts and are very similar to mutual funds, just without the capital gain distributions.
Retirement Plan Contributions:
Check your 401ks, 403bs and 457bs and confirm you are on track to maximize your contributions for this calendar year. The cut-off for 401k contributions is 12/31. If you are under age 50, the maximum amount you can defer for the year is $24,500. If you are age 50-59 or over age 64, you can defer $32,500 for the year,
If you are in the special age group of 60-63, you can defer $35,750 for the year.
For IRA, Roth IRA and HSA contributions, you have until April 15th to make your maximum contribution.
Gifting:
If you want to gift cash to family members or friends, for 2026, the gift tax exclusion is $19,000 per recipient without paying gift tax or filing a special return. Married couples can combine their individual limits to gift up to $38,000 per recipient tax-free. If you give more than the limit to a single recipient in a year, you don’t owe tax. Rather, you reduce your $15 million ($30 million if married) lifetime exemption. Keep in mind that if you do give more than the limit to a single recipient in a year, you must file a gift tax return with the IRS to track the amount applied against your lifetime limit. And, the gift amount is never treated as taxable income for the recipient.
529 Plan Contributions:
If you have a college savings plan for a child or grandchild or friend, make sure you complete your contribution before the end of the year to qualify for a state income tax deduction (if applicable in your state). For Ohio 529 plans, Ohio residents can receive up to a $4,000 income tax deduction per contribution to an Ohio 529 savings plan annually.
Please reach out to Amy directly with any questions at amy.kelly@prudential.com.
Content in this material is for general information only and not intended to provide specific individualized tax, legal advice, or recommendations for any individual. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
