Retired and Not Ready to Tap Your 401(k)? 5 Smart Steps to Take Before Mandatory Withdrawals Begin

Learn how decisions made during low-income retirement years can reduce future taxes — or increase them.

When the paychecks stop, many retirees leave their 401(k) balances alone. Vanguard says 78% of retirees ages 60 to 72 made no withdrawals, according to its How America Retires 2026 report.

Most retirement accounts do not require withdrawals until age 73, or age 75 for people born in 1960 or later. That leaves many new retirees several years before the IRS sets the timetable, and what they do — or fail to do — in that window can affect taxes and Medicare premiums for years.

1. Take advantage of low-income years with Roth conversions

Between the final paycheck and the first required withdrawal, taxable income can be unusually low, especially for retirees who delay Social Security.

Moving some pretax savings into a Roth IRA during those years means paying income tax now on the converted amount. In return, qualified Roth withdrawals can be tax-free later, and reducing the pretax balance can also shrink future required withdrawals.

Converting too much in one year can create problems elsewhere. Medicare premiums are based on income from two years earlier, so a large conversion at 63 could increase what you pay at 65.

Balancing conversions with tax brackets, Social Security timing and Medicare is the kind of planning where professional guidance 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, each legally required to put your interests first.

The questionnaire takes about 10 minutes and asks for a phone number near the end, and you decide whether and when to respond to anyone. Get matched with a fiduciary advisor free.

2. Decide whether to stay in the plan or roll over

Vanguard found that about half of retirees initially keep their money in a workplace plan, although many later move it into an IRA or similar account. Plan features matter: Recent retirees were more than 40% more likely to remain in their plans when those plans allowed partial withdrawals and installment payments.

Before moving assets, compare your plan’s fees and withdrawal choices with what an IRA would provide.

Age can also be important. 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. Send the money directly instead of taking a check

If a plan sends a distribution to you, 20% must be withheld, even if you plan to roll it over. To move the full amount within 60 days, you would need other money to make up the withheld portion, and any amount not replaced is usually taxable. Having the plan send the funds directly to the new IRA avoids that withholding.

4. Make sure your investment mix still fits your needs

About 40% of self-directed retirees hold portfolios that are either very aggressive or very conservative, Vanguard reported, a pattern it said may reflect choices made before target-date funds became widely available.

An allocation selected decades ago may not suit someone who now needs that money to provide income for years. If your plan defaults you into one fund, it is worth knowing when a target-date fund no longer matches your situation.

5. Turn savings into a regular paycheck

Vanguard found that retirees who used regular installment payments generally withdrew smaller portions of their accounts than those who took money only occasionally. A fixed monthly or quarterly payout can make spending easier to manage and less tempting to stretch after a large expense.

Ask whether your plan offers installment payments. Many IRA providers also allow automatic withdrawals.

A head start, but not forever

Required withdrawals and, for many, Social Security will eventually determine the pace. Until then, the timing is up to you. Mark the year you turn 73, or 75 if you were born in 1960 or later, and plan backward from there.