If you’re approaching retirement, your 401(k) is likely one of your largest and most important investment accounts. As you near your retirement date, it’s smart to take a hands-on approach and make sure your 401(k) is truly working for you. Here’s a thorough guide for pre-retirees:
1. Review and Rebalance Your Investments
Over time, your portfolio can drift away from the mix you originally chose, especially after strong market years. For example, if stocks have done well, your portfolio may be riskier than you intended.
- Rebalancing means adjusting your investments—selling some of what’s grown and buying what’s lagged—to return to your ideal allocation (like 60% stocks, 40% bonds).
- Most plans let you rebalance online; try to do this at least once a year or after large market swings.
- Regular rebalancing helps manage risk and keeps your plan on track as retirement nears.
2. Check Your Contributions: Maximize Savings & Understand Tax Choices
With retirement coming up, maximizing your final years of contributions can make a big difference. And it pays to understand the tax impact of your savings:
- For 2026, you can contribute up to $23,500, plus a $7,500 “catch-up” if you’re 50 or older—totaling $31,000.
- Pre-tax (Traditional) contributions: These lower your taxable income today, but withdrawals in retirement are taxed as regular income.
- Roth (after-tax) contributions: You contribute after paying taxes, but withdrawals in retirement—including earnings—are tax-free, as long as IRS rules are followed.
- Choosing between pre-tax and Roth depends on your current tax rate, your expected tax rate in retirement, and your cash flow needs.
- Consider diversifying between both types if your plan allows.
- Review your paycheck deductions and increase your contribution if you’re not yet maxing out; even small bumps add up over the years!
3. Review Your Beneficiaries
Life events—like marriage, divorce, or the birth of grandchildren—should prompt you to review beneficiary designations. Remember, beneficiary forms often override your will, so make sure all your forms are up to date.
4. What Should You Do With Old 401(k) Accounts? Pros and Cons of Every Option
Changing jobs or nearing retirement often means you have an old 401(k) or two left behind. Deciding what to do with these accounts is important for streamlining your retirement savings and maximizing your benefits. Here are your main options—and the pros and cons of each:
1. Leave It in the Former Employer’s 401(k) Plan
Pros:
- Money remains in a tax-advantaged account.
- Possible low investment fees and strong creditor protection.
- No taxes or penalties for leaving it.
- RMDs may be delayed if you’re still employed there (rare for old plans).
Cons:
- Limited investment options.
- Easier to lose track of or neglect.
- Ongoing administrative fees may apply.
- Less flexibility with beneficiaries or advanced planning.
2. Roll It Over Into Your New Employer’s 401(k) Plan
Pros:
- Consolidates accounts for easier management.
- Institutional-level fees and creditor protection may continue.
- No current taxes or penalties.
Cons:
- Fewer investment options compared to IRAs.
- Some administrative hassle.
- May be restrictions on early access.
3. Roll It Over Into an IRA
Pros:
- Wide investment selection.
- Easier to combine multiple old accounts.
- Flexible beneficiary options and estate planning.
- No taxes or penalties for direct rollovers.
Cons:
- Generally less creditor protection (depends on your state).
- Watch for fees (use low-cost providers when possible).
- RMD rules can get confusing across multiple IRAs.
4. Cash Out the Account
Pros:
- Immediate access to funds (useful only in emergencies).
Cons:
- All amounts are taxed as income; potential early withdrawal penalties if under 59½.
- Loses future tax-deferred growth.
- Dramatically reduces retirement savings.
How to Decide?
If you want more investment flexibility and easier management, rolling to an IRA is often best. If your current employer’s plan is strong, consolidating there can be smart. Avoid cashing out if you can, to protect your long-term retirement security.
5. Plan for Required Minimum Distributions (RMDs)
Once you turn 73, you’ll be required to take yearly withdrawals from your 401(k) and pay taxes on them. Planning ahead—especially if you have multiple 401(k)s and IRAs—can help you avoid surprises and minimize your lifetime tax bill.
Bottom Line:
Taking an active role in your 401(k) and former 401(k) accounts in these final years before retirement can have a big impact on your comfort and confidence moving forward. If you’re unsure about which moves are best, reach out for personalized advice—smart decisions now can make all the difference later.
Advisory services offered through FND Wealth Management, a Member of Advisory Services Network, LLC. Insurance products and services offered through Ferlita Nussel Dowell Financial Group. Advisory Services Network, LLC and Ferlita Nussel Dowell Financial Group are not affiliated. Advisory services offered through FND Wealth Management, a member of Advisory Services Network, LLC. FND Wealth Management does not offer tax or legal advice. Insurance products and services offered through Ferlita Nussel Dowell Financial Group. Tax services offered through FND Tax Management. Advisory Services Network, LLC is not affiliated with Ferlita Nussel Dowell Financial Group or FND Tax Management.