I’m Retiring Next Year. What Should I Do With My 401(k)?

If you are retiring next year, you generally have three choices for your 401(k): leave it in the plan, roll it to an IRA, or use a combination of both. The right decision depends on withdrawal flexibility, taxes, investments, fees, creditor protection, and how the account will help replace your paycheck. At Greenbush Financial Group, we typically recommend building the retirement income plan first and making the rollover decision around that plan.

What Should You Do With Your 401(k) Before You Retire?

One of the biggest mistakes retirees can make is waiting until after their final day of work to figure out what to do with their 401(k).

Before retirement, your 401(k) is primarily an accumulation account. Money goes in, stays invested, and your paycheck covers your living expenses.

After retirement, that account may have a new job: helping replace your paycheck.

That means the decision is about much more than whether an IRA offers more investment choices.

You need to consider:

• Where your monthly income will come from

• How much money should remain liquid

• Which accounts should be withdrawn from first

• How distributions will affect taxes

• Whether you will lose valuable 401(k) provisions by rolling over

• How the account fits with Social Security, pensions, Roth accounts, and taxable investments

In most cases, retirees can leave the money in the 401(k), roll it into an IRA, or potentially use both.

Your 12-Month-Before-Retirement 401(k) Checklist

Ideally, start reviewing your plan several months before your retirement date.

The Department of Labor describes the Summary Plan Description, or SPD, as the document explaining important features of your retirement plan, including when benefits can be received and how the plan operates.

Before you leave your employer:

1. Get your Summary Plan Description. Do not assume every 401(k) works the same way.

2. Confirm withdrawal rules. Can you take partial withdrawals? Monthly distributions? How quickly are requests processed?

3. Identify the different types of money in the account. You may have pretax, Roth, and after-tax balances.

4. Check for employer stock. Appreciated company stock can create special tax-planning considerations.

5. Determine whether the Rule of 55 applies. This can be particularly important if you retire before age 59½.

6. Review any outstanding 401(k) loans. Separation from employment can change how a loan is handled.

7. Review beneficiaries. Make sure your designations still reflect your estate-planning intentions.

8. Estimate your first one to two years of withdrawals. Know how much of your spending must come from investments before deciding where those investments should be held.

That last step is particularly important.

How Will Your 401(k) Replace Your Paycheck?

Suppose you retire and estimate that your household needs $8,000 per month after taxes.

Your Social Security and pension provide $5,000.

That leaves a $3,000 monthly gap.

Where does that $3,000 come from?

Possibilities include:

• Monthly 401(k) distributions

• IRA withdrawals

• Dividends and interest

• A taxable investment account

• A cash reserve

• A combination of several accounts

This is why we prefer to create the withdrawal strategy before deciding whether the 401(k) should be rolled over.

For example, if your employer's plan makes monthly withdrawals cumbersome, an IRA may provide more flexibility. If the 401(k) offers excellent investments and easy recurring distributions, keeping some money there may work perfectly well.

Key Insight: The account should support your retirement income plan. The retirement income plan should not be designed around limitations you discover after completing a rollover.

How Much Should You Keep in Cash When You Retire?

This often becomes a much bigger concern as retirement approaches.

While working, you can generally tolerate market declines more easily because your paycheck continues arriving.

Once you retire, selling investments during a market downturn can be more problematic. You are withdrawing money while the portfolio is temporarily worth less, leaving fewer investments available to participate in a recovery.

This is commonly referred to as sequence-of-returns risk.

There is no single cash amount that is appropriate for every retiree. The appropriate reserve depends on:

• How much of your spending is covered by Social Security or pensions

• Your withdrawal rate

• Other taxable or Roth assets

• Your investment allocation

• Upcoming major expenses

• Your comfort with market volatility

Example

Assume you need $36,000 annually from your portfolio to supplement Social Security.

Rather than relying on stock sales every month, you might keep part of your near-term spending needs in cash or short-term investments while investing money intended for later years differently.

The important point is not that every retiree should use a particular "bucket strategy."

It is that near-term spending needs should influence how the portfolio is structured before retirement begins.

Should You Leave the Money in Your 401(k)?

Keeping money in the employer plan may make sense if it provides:

• Low-cost institutional investments

• Strong investment options

• A stable value fund or other unique option

• Convenient withdrawals

• Strong creditor protection

• Access to special early-withdrawal rules

One of the most important issues for younger retirees is the Rule of 55.

If you separate from service during or after the calendar year in which you turn 55, distributions from that employer's qualified plan may qualify for an exception to the 10% additional tax on early distributions. This particular exception does not apply to an IRA.

Example

You retire at 57 with $900,000 in your current employer's 401(k).

You expect to need $40,000 from retirement accounts before reaching age 59½.

Rolling the entire account into an IRA without first evaluating the Rule of 55 could eliminate a valuable withdrawal option.

That does not mean you must keep the whole 401(k). It means you should understand what you are giving up before moving it.

When Does Rolling the 401(k) to an IRA Make Sense?

An IRA may offer more flexibility for:

• Investment selection

• Recurring withdrawals

• Account consolidation

• Roth conversions

• Portfolio rebalancing

• Tax withholding

• Coordinating multiple sources of retirement income

For a household managing several accounts, simplification can be valuable.

But do not assume an IRA is automatically cheaper.

Compare Fees Apples to Apples

Imagine your 401(k) has:

• 0.10% investment expenses

• 0.15% administrative costs

Your total plan cost may be roughly 0.25%.

Now assume the proposed IRA uses investments costing 0.15% plus a 1.00% advisory fee.

The IRA offers more flexibility, but it is clearly not less expensive.

The opposite can also occur.

When comparing accounts, look at the complete cost:

401(k):

• Plan administrative fees

• Investment expense ratios

• Other participant fees

IRA:

• Advisory fee

• Investment expenses

• Custodial or transaction costs, if applicable

Fees matter, but cost should be evaluated alongside the services, advice, investments, and planning flexibility you are receiving.

Your 401(k) May Contain More Than One Tax Bucket

A large 401(k) does not necessarily contain one type of money.

Your statement may include:

• Pretax 401(k) contributions

• Roth 401(k) contributions

• Employer contributions

• After-tax employee contributions

Those dollars do not necessarily have to go to the same destination.

IRS rules can allow pretax amounts and after-tax amounts from the same distribution to be directed to different eligible accounts. For example, qualifying pretax amounts may go to a traditional IRA while certain after-tax amounts are directed to a Roth IRA.

This is an area where understanding exactly what is inside the plan before requesting a distribution can make a substantial difference.

Roth 401(k) money also has its own tax characteristics, so do not simply tell the recordkeeper to "roll over everything" without knowing how each source will be handled.

Do You Have an Outstanding 401(k) Loan?

Review this before your employment ends.

Depending on the plan and circumstances, separation from service can result in an unpaid plan loan being offset against your account balance. Special rollover rules can apply to a qualified plan loan offset, including a potentially longer period to replace the offset amount than the normal 60-day rollover window.

The specifics matter.

If you have a large outstanding loan, ask the plan administrator exactly what happens when you retire before setting your final retirement date.

How Do RMDs Affect the 401(k) Versus IRA Decision?

Required minimum distributions, or RMDs, eventually force money out of many pretax retirement accounts.

Under current law, RMDs generally begin at age 73 for people currently subject to that starting age, with later starting ages applying to younger generations under SECURE 2.0. Traditional IRAs require RMDs once the applicable age is reached even if you continue working. Employer plans can sometimes permit a still-working employee to delay RMDs until retirement, although plan terms and ownership rules matter.

RMD administration also differs.

If you have several traditional IRAs, the RMDs can generally be calculated for each IRA and the total withdrawn from one or more of those IRAs. RMDs from employer retirement plans generally must be satisfied separately for each plan.

Under current rules, Roth IRAs and designated Roth accounts in plans do not require lifetime RMDs for the original owner.

For someone retiring years before RMDs begin, that gap can also create a valuable window for strategic Roth conversions.

Do Not Forget the Beneficiaries

For many retirees, a $500,000, $1 million, or larger retirement account is also a significant estate asset.

Review:

• Primary beneficiaries

• Contingent beneficiaries

• Whether your spouse should inherit the account

• Whether children or trusts are named

• How inherited-account tax rules may affect beneficiaries

For many non-spouse beneficiaries, current law generally requires an inherited defined-contribution retirement account to be fully distributed within 10 years, although exceptions and additional distribution rules can apply. Surviving spouses have additional options that non-spouse beneficiaries may not have.

That makes beneficiary planning part of the tax plan, not simply an administrative form you completed 15 years ago.

8 Questions to Ask Your 401(k) Provider Before You Retire

Before making a rollover decision, call HR or the plan recordkeeper and ask:

1. Can I leave my money in the plan after retirement?

2. Can I take partial and recurring monthly withdrawals?

3. Are there fees for distributions?

4. What are my total plan and investment expenses?

5. Does my account contain pretax, Roth, or after-tax money?

6. Do I own employer stock, and what is its cost basis?

7. What happens to my outstanding 401(k) loan when I retire?

8. Can I complete a partial rollover and leave the remaining balance in the plan?

Write down the answers. These details can materially change the decision.

Avoid These Common 401(k) Mistakes

The mistakes we see most often are:

• Rolling over automatically because retirement occurred

• Ignoring the Rule of 55

• Moving employer stock without evaluating its tax treatment

• Failing to identify after-tax or Roth money

• Forgetting about a 401(k) loan

• Comparing fees incompletely

• Requesting a check payable directly to yourself

• Moving the account before creating a withdrawal plan

If an eligible rollover distribution is paid directly to you rather than sent through a direct rollover, retirement plans generally must withhold 20% for federal taxes. A properly structured direct rollover generally avoids that withholding.

Final Thoughts

Deciding what to do with your 401(k) is not simply a choice between an employer plan and an IRA.

Your 401(k) is becoming part of your retirement paycheck.

Before moving it, determine:

• How much income your household needs

• Where that income will come from

• How much liquidity you want for the early retirement years

• Whether the plan contains special tax features

• How withdrawals interact with Social Security and taxes

• What you may lose by completing the rollover

At Greenbush Financial Group, we generally recommend building the retirement income and tax plan first, then determining whether the 401(k), an IRA, or a combination of both best supports that strategy.

The goal is not simply to move the money. It is to make sure the money is structured to support the next phase of your financial life.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

Frequently Asked Questions

1. Should I roll my 401(k) into an IRA when I retire?
   Not automatically. An IRA may provide greater flexibility, while a 401(k) may offer attractive investments, lower costs, creditor protection, or withdrawal provisions worth preserving.
2. Can I leave part of my 401(k) and roll over the rest?
   Some plans allow partial rollovers after retirement. This can allow you to preserve useful 401(k) features while gaining IRA flexibility with the remaining assets.
3. How do retirees take monthly income from a 401(k)?
   Some plans allow recurring monthly distributions. Others have more restrictive withdrawal rules. Check the plan before retirement and compare those provisions with an IRA or other sources of retirement income.
4. How much cash should I have when I retire?
   There is no universal amount. Your appropriate cash reserve depends on your spending needs, guaranteed income, portfolio allocation, other assets, and how much protection you want from having to sell investments during a market decline.
5. Is a 401(k) rollover taxable?
   A properly completed direct rollover of pretax 401(k) money to a traditional IRA generally does not create current taxable income. Moving pretax money to a Roth IRA generally creates taxable income.
6. What happens to my 401(k) loan when I retire?
   It depends on the plan. An unpaid balance may become a plan loan offset after separation, and special rollover rules can apply. Review the loan before selecting your retirement date.
7. Should I review my 401(k) beneficiaries before retiring?
   Yes. Retirement is a good time to confirm primary and contingent beneficiaries and coordinate them with your broader estate and tax plan.

2026 Roth IRA Conversions Explained: Smart Timing and Costly Mistakes

Roth conversions can be one of the most powerful tax planning tools in retirement, but they are not always beneficial. A Roth conversion involves moving money from a pre-tax account into a Roth account and paying taxes now to avoid taxes later. At Greenbush Financial Group, our analysis shows that Roth conversions are most effective when done strategically across multiple years, not as a one-time decision.

What Is a Roth Conversion and How Does It Work?

A Roth conversion moves funds from a Traditional IRA or 401(k) into a Roth IRA or 401(k).

Key Mechanics

• Converted amount is taxed as ordinary income

• No early withdrawal penalty if done correctly

• Future growth and withdrawals are tax-free

• No Required Minimum Distributions (RMDs) for Roth IRAs

Example

• Convert $50,000 from an IRA to a Roth IRA

• Pay taxes on $50,000 this year

• Future withdrawals are tax-free

At Greenbush Financial Group, we view Roth conversions as a way to “prepay taxes” at potentially lower rates.

When Roth Conversions Make Sense

There are specific scenarios where Roth conversions can significantly improve long-term outcomes.

1. Low-Income Years in Early Retirement

The period between retirement and starting Social Security or RMDs is often ideal.

• Lower taxable income

• Opportunity to fill lower tax brackets

• Reduce future tax burden

2. Before Required Minimum Distributions (RMDs)**

RMDs can force higher taxable income later in retirement.

• Converting early reduces future RMDs

• Helps avoid higher tax brackets in your 70s

3. Expecting Higher Future Tax Rates

If you believe your future tax rate will be higher:

• Paying taxes now may be beneficial

• Locks in current tax rates

4. Large Pre-Tax Account Balances

High IRA or 401(k) balances can create tax challenges later.

• Large RMDs

• Increased IRMAA surcharges

• Higher Social Security taxation

5. Leaving Assets to Heirs

Roth accounts can be more tax-efficient for beneficiaries.

• Tax-free withdrawals for heirs

• No lifetime RMDs for original owner

At Greenbush Financial Group, Roth conversions are often used as part of a broader estate and tax planning strategy.

When Roth Conversions May Not Make Sense

Roth conversions are not always the right move.

1. Already in a High Tax Bracket

If converting pushes you into a higher bracket:

• You may pay more tax than necessary

• Reduces the benefit of the conversion

2. Short Time Horizon

If you expect to use the money soon:

• Limited time for tax-free growth

• Less benefit from conversion

3. Paying Taxes From the Conversion Itself

Using IRA funds to pay taxes reduces the amount converted.

• Decreases long-term growth potential

• Less efficient overall

4. Expecting Lower Future Tax Rates

If your income will decrease later:

• You may pay more tax now than necessary

5. Impact on Medicare and Social Security

Conversions increase taxable income.

• May trigger IRMAA surcharges

• Can increase taxation of Social Security

At Greenbush Financial Group, we often see Roth conversions backfire when these factors are not considered.

The “Tax Bracket Filling” Strategy

One of the most effective ways to approach Roth conversions is by filling up lower tax brackets.

How It Works

• Identify your current tax bracket

• Convert just enough to stay within that bracket

• Avoid jumping into higher brackets

Example

• Top of 12% bracket = target income level

• Convert enough to reach that limit

• Stop before entering the 22% bracket

This strategy spreads conversions over multiple years, reducing overall tax impact.

Roth Conversions and IRMAA Considerations

Roth conversions increase your income for that year, which can affect Medicare premiums.

Key Impact

• Higher income can trigger IRMAA surcharges

• IRMAA is based on income from two years prior

Planning Tip

Balance Roth conversions with IRMAA thresholds to avoid unnecessary premium increases.

A Multi-Year Roth Conversion Strategy Example

Scenario

• Age 62, recently retired

• $800,000 in IRA

• Low income before Social Security

Strategy

• Convert $40,000–$60,000 annually

• Stay within a lower tax bracket

• Delay Social Security

Outcome

• Reduced future RMDs

• Lower lifetime taxes

• Increased tax-free income later

At Greenbush Financial Group, this type of phased approach is often more effective than a single large conversion.

Common Roth Conversion Mistakes

• Converting too much in one year

• Ignoring tax bracket thresholds

• Overlooking IRMAA impacts

• Not coordinating with Social Security timing

• Failing to plan conversions over multiple years

Final Thoughts

Roth conversions can be a powerful tool, but only when used strategically. The goal is not simply to convert assets, but to reduce lifetime taxes and create more flexibility in retirement income.

At Greenbush Financial Group, our analysis shows that the most successful strategies involve careful timing, tax bracket management, and long-term planning.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

1. Is it a bad idea to retire in a down market?
   Not necessarily, but it increases sequence of returns risk and requires careful planning.
2. How much cash and short-term fixed income should I have in retirement?
   Typically 1 to 3 years of living expenses.
3. Should I stop withdrawals during a downturn?
   Not entirely, but reducing withdrawals can improve long-term outcomes.
4. Can a market downturn ruin my retirement plan?
   It can if not managed properly, especially in the early years of retirement.
5. What is the best strategy during a market downturn?
   Maintain a cash reserve, adjust withdrawals, stay invested, and focus on long-term planning.