When paychecks stop, most retirees leave their 401(k)s untouched. Vanguard found that 78% of retirees ages 60 to 72 took no withdrawals, according to its How America Retires 2026 report.
Required withdrawals from most retirement accounts do not begin until age 73, or 75 for people born in 1960 or later. That gives many new retirees several years before the IRS sets the pace, and the choices made or skipped in that stretch can shape what they owe in taxes and Medicare premiums for years.
1. Use low-income years for Roth conversions
Between the last paycheck and the first required withdrawal, taxable income may be unusually low, especially for retirees delaying Social Security.
Converting some pretax savings to a Roth IRA in those years means paying income tax on the converted amount at your current rate. In exchange, qualified Roth withdrawals are tax-free later, and a smaller pretax balance can mean smaller required withdrawals.
Converting too much in a single year can cost you elsewhere. Medicare premiums are tied to income from two years earlier, so a large conversion at 63 can raise what you pay at 65.
Sizing conversions around tax brackets, Social Security timing and Medicare is the kind of planning where a professional can help. If you have $100,000 or more in investments, SmartAsset offers a free matching service that pairs you with up to three fiduciary financial advisors, all legally required to put your interests first.
The questionnaire takes about 10 minutes and asks for a phone number near the end, and you control whether and when you respond to anyone. Get matched with a fiduciary advisor free.
2. Decide whether to stay in the plan or roll over
About half of retirees initially stay in their workplace plan, though many eventually roll their savings into an account such as an IRA, Vanguard found. Plan design matters: Recent retirees were more than 40% more likely to stay in their plans when plans offered partial withdrawals and installment payments.
Before moving anything, compare your plan’s fund costs and withdrawal options with what an IRA would offer.
Age can matter, too. If you left your job during or after the year you turned 55, withdrawals from that employer’s 401(k) are generally exempt from the 10% early withdrawal tax, an IRS exception that does not apply to IRAs.
3. Move the money directly, not by check
A plan distribution paid to you is subject to mandatory 20% withholding, even if you intend to roll it over. To roll over the full amount within 60 days, you would need other money to replace what was withheld, and any shortfall is generally taxable. Having the plan send the money straight to the new IRA avoids the withholding.
4. Check whether your mix still fits
About 40% of self-directed retirees hold portfolios that are very aggressive or very conservative, Vanguard reported, a pattern it said may reflect decisions made before target-date funds were widely available.
An allocation chosen decades ago may not suit someone who now needs to draw income from it for years. If your plan defaults you into one fund, it is worth knowing the signs a target-date fund no longer fits.
5. Turn savings into a steady paycheck
Vanguard found that retirees who took regular installment payments generally withdrew smaller portions of their accounts than those who took occasional withdrawals. A fixed monthly or quarterly amount can make spending easier to track and less tempting to stretch after a big expense.
Ask whether your plan offers installments. Many IRA providers also let you schedule automatic withdrawals.
A head start with a deadline
Required withdrawals and, for many, Social Security will eventually set the pace. Until then, the timing is yours. Write down the year you turn 73, or 75 if you were born in 1960 or later, and work backward.
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