Key takeaways
- Taxable brokerage: sales can realize capital gains.
- Tax-advantaged accounts: rebalancing typically does not create current tax.
- New contributions and dividends can rebalance without selling.
Target-date funds rebalance for you. If you hold pieces, drift happens: stocks rise, the stock slice gets bigger than the plan. Selling the winner in a taxable account can generate a gain the IRS will hear about. Directing new 401(k) money into the laggard, or using dividends, can nudge weights with fewer sales.
Tax rules depend on account type and your return. A CPA beats a blog post for your 1099.
