When you retire, your 401(k) and IRA don’t close or pay out automatically. They stay invested, and nothing has to happen right away. What changes is their job: for decades they were for building savings, and now they become the source of your income. That shift brings new decisions about where to keep the money, how to withdraw it and how it will be taxed.
Here is what actually happens to your retirement accounts when you retire, and the choices worth making in your first year.
Key takeaways
- Your accounts stay where they are until you decide to move or withdraw money.
- For an old 401(k) you can usually leave it, roll it to an IRA, or roll it to a new employer’s plan. Cashing out is rarely wise.
- Withdrawals from traditional accounts are taxed as ordinary income; qualified Roth withdrawals are tax-free.
- Required minimum distributions start at 73, or 75 if you were born in 1960 or later.
- Leaving your job at 55 or later lets you withdraw from that employer’s 401(k) without the 10% early penalty.
Your 401(k): three main options
1. Leave it in the plan
Most plans let you keep your money there if the balance is over a small minimum. This can make sense if the plan has low-cost funds, if you want to use the Rule of 55, or if you value the stronger creditor protection employer plans can offer. The drawbacks: some plans only allow all-or-nothing withdrawals, and you can’t contribute any more.
2. Roll it to an IRA
An IRA usually offers more investment choice, more flexible withdrawals and the ability to consolidate several old accounts. Always ask for a direct rollover, so the money moves straight to the IRA with no tax withheld. See our step-by-step rollover guide.
3. Roll it to a new employer’s plan
If you are moving to part-time or “bridge” work with a plan that accepts rollovers, this keeps everything in one place.
Cashing out means paying income tax on the whole balance in one year, plus a 10% penalty if you are under 59½ (or under 55 when you left the employer). It can also push you into a higher bracket and raise your Medicare premiums.
How withdrawals are taxed
- Traditional 401(k) and IRA: taxed as ordinary income. Most 401(k) payments that could be rolled over have 20% federal tax withheld automatically; IRA withdrawals default to 10% withholding, which you can change.
- Roth 401(k) and Roth IRA: tax-free if you are 59½ or older and meet the five-year rule.
- After-tax money in a 401(k) comes back tax-free, though its earnings are taxable.
Which accounts you draw from, and in what order, can make a big difference to your lifetime tax bill. See tax-efficient withdrawal strategies and how retirement taxes work.
Required minimum distributions
From age 73 (75 if you were born in 1960 or later), you must withdraw a minimum amount each year from traditional IRAs and 401(k)s. Your first RMD can be delayed to April 1 of the following year, but then you take two in one year. If you are still working, you can usually delay RMDs from your current employer’s plan until you retire. Roth IRAs, and since 2024 Roth 401(k)s, have no lifetime RMDs. See RMDs and taxes.
Your first-year checklist
- List every account, old and new, with its type and balance.
- Decide whether to keep, consolidate or roll over each old 401(k).
- Set up an income plan: how much you need each month and which accounts it comes from. See building retirement income from your savings.
- Keep one to two years of spending in cash or short-term bonds.
- Set the right tax withholding or estimated payments.
- Update beneficiaries on every account.
- Review your investment mix for the income stage.
Frequently asked questions
Do I have to move my 401(k) when I retire?
No. If your balance is above the plan’s minimum, you can usually leave it. Smaller balances may be moved automatically to an IRA.
Can I still contribute to an IRA after I retire?
Only if you or your spouse have earned income, such as part-time wages.
What happens to my accounts when I die?
They pass to the beneficiaries named on each account, not through your will. A spouse can usually treat an inherited IRA as their own; most other heirs must empty it within ten years.
The bottom line
Retirement doesn’t end your accounts; it changes how you use them. A few deliberate choices in your first year (where to hold the money, how to withdraw it and how to handle taxes) set up the decades that follow.
Want the full playbook? The Essential 401(k) & IRA Retirement Guide covers rollovers, withdrawals, RMDs and income planning in plain English.
This article is for education only and is not financial advice. Review major decisions with a qualified professional.
