Your 401(k) Balance Isn't Your Retirement Income: 5 Tax Decisions to Review Before You Retire

You’ve spent years building your retirement savings. Now it’s time to think about how those savings will actually become income.

By Sarah Rosas, ChFC® | President & Senior Financial Advisor, Precise Financial Solutions

For most of your working years, retirement planning probably felt like a savings conversation.

Am I contributing enough to my 401(k)?Am I getting the company match?How much have I accumulated?

Those are important questions.

But when retirement gets closer, I think there’s a much more important question to start asking:

How much of what I’ve saved will actually be available for me to spend?

Because the number you see when you log into your 401(k) is not necessarily the same amount you'll have available to fund your retirement lifestyle.

Taxes matter. The types of accounts you own matter. When you take withdrawals matters. Your Social Security and pension income matter. Even Medicare can enter the conversation.

This is one of the reasons I encourage people to start looking at retirement differently when they're about five to ten years away.

You're no longer just accumulating.

You're preparing to turn everything you've built into a paycheck.

Here are five tax-related decisions worth reviewing before you get there.

1. Are you saving in the right type of account?

A lot of people tell me, “I'm maxing out my 401(k), so I should be in good shape.”

That's great.

But I also want to know where those dollars are going.

Are your contributions going into a traditional pre-tax 401(k)? Roth? A combination of both?

With a traditional 401(k), contributions generally reduce taxable income today, but distributions are generally taxable when withdrawn. With Roth contributions, you don't receive that upfront tax deduction, but qualified distributions can generally be tax-free.

Neither option is automatically better.

The question is:

When would you rather pay the tax, and what makes sense based on your overall retirement picture?

This question is especially timely in 2026.

The employee contribution limit for most 401(k), 403(b) and governmental 457 plans is $24,500 this year. People age 50 and older can generally make an additional $8,000 catch-up contribution, and those who turn 60, 61, 62 or 63 during 2026 can have a higher catch-up limit of $11,250. (IRS)

There's another change that some higher-income employees need to know about. Beginning in 2026, if your prior-year wages from the employer sponsoring the plan exceeded $150,000, catch-up contributions generally must be made on a Roth basis when the plan is subject to the new rule and offers catch-up contributions. (IRS)

So if you're over 50 and still working, this is a good year to actually look at your contribution elections instead of putting your 401(k) on autopilot.

2. Could there be an opportunity between your last paycheck and your first RMD?

This is a period of retirement planning I don't think gets enough attention.

Imagine you're 62 and retire.

Your paycheck stops.

Maybe you haven't claimed Social Security yet.

You're not yet required to take distributions from certain retirement accounts.

Your taxable income could look very different than it did during your highest-earning years.

That's why the years around retirement can be worth examining for potential tax-planning opportunities, including whether partial Roth conversions make sense.

A Roth conversion means moving money from a pre-tax retirement account into a Roth account and generally recognizing the converted amount as taxable income in the year of conversion.

That does not mean everyone approaching retirement should start converting their IRA to Roth.

Far from it.

The amount converted can affect your tax situation and potentially other income-based costs, which is why the decision needs to be modeled rather than made because someone on the internet said, “You need a Roth.”

The bigger point is this:

Your retirement date isn't just the day you stop working. It can also change your tax-planning opportunities.

And that's something worth looking at before retirement rather than discovering afterward.

3. Do you know where your retirement paycheck will come from?

This is where retirement planning starts getting real.

Imagine you've accumulated:

• a 401(k)

• an IRA

• some Roth money

• a taxable investment account

• a pension

• Social Security

  
  

That's great.

But those aren't six separate retirement plans.

They're six pieces of one retirement income plan.

Once the paycheck from your employer disappears, you need to determine which accounts you'll use, when you'll use them and how those decisions interact.

Traditional retirement-plan distributions are generally included in taxable income unless an exception applies, while qualified Roth distributions can receive different tax treatment. Social Security benefits can also become partially taxable depending on your other income. (IRS)

And eventually, required minimum distributions may enter the picture. Under current law, RMDs generally begin at age 73 for traditional IRAs and many retirement-plan accounts, although workplace-plan rules can differ depending on employment status. Roth IRAs and designated Roth accounts generally don't require lifetime RMDs for the original owner. (IRS)

That's why I don't like looking at retirement accounts individually.

I'd rather ask:

“How are we going to turn all of this into the income you need while being thoughtful about taxes along the way?”

That's a very different conversation.

4. Could your retirement income affect what you pay for Medicare?

This one surprises people.

Your retirement-income decisions can potentially affect more than your federal income-tax bill.

They can also affect your Medicare premiums.

For 2026, the standard Medicare Part B premium is $202.90 per month. Higher-income beneficiaries can pay an additional Income-Related Monthly Adjustment Amount, commonly called IRMAA.

For 2026, that surcharge begins above modified adjusted gross income of $109,000 for individual filers or $218,000 for married couples filing jointly, based on the applicable income information used by Medicare. At higher income levels, the Part B premium can increase substantially. (Centers for Medicare & Medicaid Services)

Why does this belong in a retirement-planning conversation?

Because a large retirement-account distribution or Roth conversion can increase income.

That doesn't automatically make the transaction a bad idea.

But it does mean we shouldn't make decisions in a vacuum.

Sometimes a strategy can look great when we examine only the tax return and look very different once we examine its effect on the rest of the retirement plan.

The goal isn't simply to pay the least tax this year.

The goal is to make informed decisions across your retirement.

5. What are you going to do with your 401(k) when you retire?

Eventually, many people reach the question we've been building toward:

“Okay, I'm retiring. What do I do with my 401(k)?”

And this is where I want people to slow down.

Depending on your circumstances and plan, you may have several choices. You may be able to leave the money in your former employer's plan, roll assets into another eligible retirement account, take distributions, or use some combination of available options.

A rollover isn't automatically the right answer.

Leaving the money in the 401(k) isn't automatically the right answer either.

Before making that decision, I would want to understand things like:

What are the investment options and costs?

How will you create income from the account?

Do you have Roth and pre-tax money?

What other retirement accounts do you own?

How does the decision fit with your tax strategy?

What are the plan's distribution rules?

How does it fit with your beneficiary and estate-planning goals?

Because the question isn't simply:

“Where should I move my 401(k)?”

It's:

“What role should this money play in my retirement?”

That's the question I think matters.

Retirement Planning Changes When Retirement Gets Close

If you're ten years from retirement, you still have time.

And that's exactly the point.

I would much rather have someone start asking these questions at 55 or 60 than wait until their retirement party at 65.

Because the closer you get, the more connected the decisions become.

Your 401(k) affects your income.

Your income affects your taxes.

Your taxes can affect your Medicare costs.

Your Social Security decision affects your income.

Your investments have to support not just the first few years of retirement, but potentially decades.

It's all connected.

And that is really what retirement planning should be about.

Not chasing one perfect investment.

Not trying to predict the market.

Not making a Roth conversion because you heard everyone should have Roth money.

And definitely not making a 401(k) decision simply because you retired and somebody told you that you had to move it.

It's about understanding your numbers, your options and how the pieces work together.

Retiring in the Next 5–10 Years?

If retirement is starting to feel less like “someday” and more like something that's actually coming, this is a great time to start looking at the bigger picture.

At Precise Financial Solutions, we help pre-retirees and retirees coordinate the different pieces of retirement, including investments, income planning, Social Security, tax-efficient strategies, protection and legacy planning.

You don't need to have everything figured out before we talk.

That's the point of the conversation.

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