Preparing for retirement is more involved than most people expect. To help you get ready, we have laid out the essential topics below, along with the resources that go with them. In our experience these decisions are best made with the people you trust in the room: your financial advisor, your attorney, your CPA, your spouse, and often your grown children. Retirement is a major transition, and it touches the whole family, not just your accounts.
Two of the biggest retirement decisions, when to enroll in Medicare and when to claim Social Security, deserve their own space, so we cover them in depth on our Medicare & Social Security page rather than repeat them here.
Forward thinking is the key to a retirement budget. Picture how your lifestyle might change over the next 25 to 30 years, and try to include every expense, not just the obvious ones. Today's retirees tend to be more active than past generations, so travel, hobbies, and entertainment deserve a real line in the plan. Health care costs often climb in the middle and later years of retirement, and you may find yourself helping an aging parent along the way. And if you plan to move, a change in the local cost of living will shift your numbers too.
Oh, and one more thing. You love your children and grandchildren, so why not help them get an early start on their own retirement with the new 530A account, available for every American child under age 18. The account is even funded with $1,000 of federal money for babies born between January 1, 2025 and December 31, 2028.
Make sure your life, health, homeowners, and auto coverage still matches the stage of life you are actually in. You might need to adjust life insurance to line up with your estate plan, or discover that your health plan no longer covers a prescription you rely on. Knowing what you have, and what you still need, well ahead of time is what saves you the sleepless nights later.
Saving for retirement is only half the job. The other half is turning what you saved into income that lasts. History has shown that drawing much more than about 5% of your total retirement assets each year runs a real risk of running out, because a long life, inflation, taxes, market swings, your rate of return, health care costs, and any gifts you plan to leave all pull at the same pool of money.
The same discipline that built your savings, living below your means, is what makes them last. A sound income plan decides which accounts to draw from, and in what order, to stretch your money and lower your lifetime tax bill. It also plans for the years markets fall, so you are not forced to sell investments at the worst possible time.
The 5% figure is a general guideline drawn from historical experience, not a guarantee or a projection of your results. Your sustainable withdrawal rate depends on your own circumstances.
Pension Benefits & Retirement Distribution Options
You have probably heard the old advice: do not put all your eggs in one basket. Chances are you followed it, and now your money is spread across a bank account here, a 401(k) from an old job there, plus maybe a 403(b), a Roth or Traditional IRA, a SEP IRA, and a money market account. That is healthy diversification, but it is hard to manage when it lands on five different statements. Part of what we do is help you bring those accounts together into one clear picture, so your income shows up in the bank on time and you are not chasing paperwork to confirm every deposit.
What to do with an old 401(k)
When you change jobs or retire, an old 401(k) does not have to move, but you do have a decision to make. In most cases you have four choices, and each carries real trade-offs:
Leave it in your former employer's plan, if the plan allows it.
Roll it into your new employer's plan, if that plan accepts transfers.
Roll it into an Individual Retirement Account (IRA), which usually opens up a wider range of investment choices.
Cash it out, which is almost always the most expensive path: it generally triggers income tax, plus a 10% penalty if you are under 59½.
The right choice depends on the details, and the details matter more than people expect:
Taxes on a cash-out add up fast. Take $50,000 out of an old 401(k) before 59½ and you could lose roughly a third of it: federal income tax at your bracket, a 10% early-withdrawal penalty, and state tax on top. What feels like a windfall often is not.
Creditor protection is not the same everywhere. Money left in a 401(k) has strong federal protection from creditors. Once it moves to an IRA, how well it is protected depends on your state's laws. If that matters for you, it is worth checking before you move anything.
Company stock deserves special care. If your 401(k) holds shares of your employer, a rule called Net Unrealized Appreciation can offer real tax savings, and a routine rollover can accidentally throw it away. Flag it before you roll anything over.
Fees and choices vary widely. Some old plans have excellent, low-cost funds; others are expensive and limited. An IRA usually opens up more options, but more is only better when it actually fits your plan.
Consolidating old accounts often makes life simpler and your plan easier to manage, but simpler is not automatically better for everyone. It has to be right for you.
Turning savings into a paycheck you cannot outlive
Traditional pensions are fading, and the ones that remain often force a single, irreversible choice. Meanwhile many people retire with savings but no guaranteed paycheck beyond Social Security. If a steady, predictable income is what you are after, there are a few ways to build one, depending on where your money sits today:
Rollover: money from an old 401(k), 403(b), or IRA can be rolled into an IRA that funds a lifetime-income strategy, while keeping its tax-deferred status.
Build your own pension: a variable annuity with an optional income rider can turn a lump sum into payments designed to last as long as you live. In effect, a personal pension you create for yourself.
The "build your own pension" idea is worth understanding, because it is often misunderstood. With an optional income rider (sometimes called a guaranteed lifetime withdrawal benefit), you keep your account and stay invested, but the insurance company guarantees you can withdraw a set percentage every year for the rest of your life, even if the market falls and your account value drops. In exchange, you pay an annual fee for that rider. It can be a way to put a floor under your income without handing over your whole nest egg, but the fee and the fine print are exactly why it deserves a careful look.
A word of honesty, because these products are sometimes oversold. A variable annuity is a long-term investment. Its value moves with the markets, it carries fees and often surrender charges if you take money out early, and any income guarantee depends on the financial strength of the insurance company that issues it, not the government. In the right situation it is a genuinely useful tool. In the wrong one it is an expensive mistake. That is why this deserves a real conversation about your goals, not a sales pitch.
Variable annuities are long-term, tax-deferred investment vehicles designed for retirement and contain both an investment and an insurance component. They are sold by prospectus and carry fees and charges, including mortality and expense charges, administrative fees, and the cost of any optional riders. Any guarantees are based on the claims-paying ability of the issuing insurance company. Withdrawals may be subject to surrender charges and, if taken before age 59½, a 10% federal tax penalty may apply. Consider the investment objectives, risks, charges, and expenses carefully before investing. This page is educational and is not a recommendation of any specific product or strategy.
Required Minimum Distributions
Once you reach a certain age, the government requires you to start withdrawing from tax-deferred accounts like traditional IRAs and 401(k)s. That withdrawal is called a Required Minimum Distribution, or RMD. Under current law RMDs begin at age 73, and that starting age is scheduled to rise to 75 in 2033. Roth IRAs are not subject to RMDs during your lifetime, which is one reason they can be such a useful planning tool.
Here is how it works in practice. Each year the amount is figured by taking your account balance at the end of the prior year and dividing it by a life-expectancy factor from an IRS table, so the required amount changes every year. Your very first RMD can be delayed to April 1 of the year after you turn 73, but if you wait, you take two in the same year, which can spike your taxes. One more wrinkle: you can add up your IRAs and take the total from any one of them, but 401(k) accounts generally each have to pay out on their own.
Missing one is costly, since the penalty is a share of what you should have taken, so the dates matter. And a large RMD can ripple outward: it can push you into a higher tax bracket, increase the taxable portion of your Social Security, and even raise your Medicare premiums. Planning ahead, by drawing certain accounts down earlier, converting to a Roth in lower-income years, or giving directly to charity from your IRA through a Qualified Charitable Distribution, can soften the hit. The goal is not just to take the RMD. It is to take it in the way that costs you the least over the length of your retirement.
RMD ages and rules are set by federal law and are subject to change. This is educational information, not tax advice. Please consult a qualified tax professional about your specific situation.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
This is the paperwork that decides who gets what, and how smoothly. Start with your beneficiary designations. The names listed on your retirement accounts and insurance policies control who inherits them, no matter what your will says, so they are worth reviewing after every major life change: a marriage, a divorce, a birth, or a death in the family.
A few common and costly mistakes hide here: naming your estate instead of a person (which can drag the account through probate and speed up the tax bill), leaving a form blank so an old default applies, naming a minor child with no trust or guardian in place, or forgetting to name a backup beneficiary. Each one is easy to fix while you are alive and expensive to fix after you are gone.
If you are inheriting an IRA, know that the rules changed in a big way. For most non-spouse heirs the old "stretch," which let you draw an inherited account down slowly over your lifetime, is gone. Under the SECURE Act the account generally has to be emptied within 10 years, and if the person you inherited from had already started taking their own RMDs, you also have to take a withdrawal each year during those ten, not just empty the account by the end. A surviving spouse has more options, including treating the IRA as their own, and certain other beneficiaries are treated differently. Getting the timing wrong can trigger penalties or a needless tax spike, so it is worth a short conversation before you touch an inherited account.
Beyond beneficiaries, you will want a will, and often a trust, to direct how your assets pass and to help reduce taxes and costs. You also need two kinds of authority in place in case you cannot act for yourself: a Power of Attorney for financial decisions and a Durable Power of Attorney for health care decisions. Most people need both.
We go deeper on wills, trusts, and estate strategy on our Wealth Transfer page. This is a place to bring your attorney and CPA into the conversation alongside us.
Inherited-account and estate rules are complex and set by federal law, which is subject to change. This is educational information, not tax or legal advice. Please consult a qualified tax or legal professional about your specific situation.
Even in retirement, life throws curveballs, so we recommend keeping an emergency fund: a readily available account holding roughly six to twelve months of expenses. Having that cushion means an unexpected cost does not force you to sell long-term investments at a bad time or reach for a high-interest loan that pulls you deeper into debt.
In retirement an emergency fund does double duty. When markets are down, it gives you a place to draw income from while your invested money has time to recover, which is one of the simplest ways to protect a portfolio from a bad year early in retirement. See our Emergency Fund page for how to size and set one up.
Straight answers to common questions about rollovers, Roth conversions, and required minimum distributions, drawn from the IRS and FINRA.
401(k) Rollovers
What are my options for an old 401(k) when I leave a job?
Generally, you have four: leave the money in your former employer's plan, roll it into your new employer's plan if that plan accepts transfers, roll it into an IRA, or cash it out. Each has trade-offs, including fees, investment choices, services, withdrawal rules, and protection from creditors, so compare them before you decide. Cashing out is usually the most costly choice, because it can bring income tax and, if you are under 59½, a 10% additional tax.
What is the difference between a direct rollover and a 60-day rollover?
In a direct rollover, your plan sends the money straight to your IRA or new employer's plan. If the plan pays the distribution to you instead, you have 60 days to deposit it, and the plan must withhold 20% for taxes even if you intend to roll it over. To roll over the full amount, you would need to make up that 20% from other money.
Can I roll my 401(k) into a Roth IRA?
Yes. Money in a Roth 401(k) can be rolled into a Roth IRA. Pre-tax 401(k) money can also be rolled into a Roth IRA, but it is treated like a Roth conversion, so the pre-tax amount you roll over is generally included in your taxable income for that year.
How many rollovers can I do in a year?
If an IRA distribution is paid to you and you roll it into another IRA, the IRS allows only one of those rollovers in any 12-month period, counting all of your IRAs together. The limit does not apply to direct transfers between IRA custodians, rollovers from a workplace plan to an IRA, or conversions from a traditional IRA to a Roth IRA.
Roth Conversions
Do I pay taxes when I convert to a Roth IRA?
Generally, yes. The pre-tax amount you convert is included in your taxable income for the year you convert. A conversion raises your income for that year, which can affect other things tied to income, such as your Medicare premiums, which are generally based on your tax return from two years earlier.
Can I undo a Roth conversion?
No. Roth conversions made in 2018 or later cannot be reversed, so it is worth planning the amount and the timing before you convert.
What is the five-year rule for Roth conversions?
If you are under 59½ and withdraw converted money within five years, you may owe the 10% additional tax on the part of the conversion that was taxable. Each conversion has its own five-year period, which starts on the first day of the tax year in which you convert.
Required Minimum Distributions
When do I have to start taking required minimum distributions?
Under current law, generally at age 73. Your first RMD from an IRA is due by April 1 of the year after you reach 73, and each later RMD is due by December 31, so delaying the first one means taking two in the same year. If you are still working, your current employer's plan may let you wait until you retire, unless you are a 5% owner of the business.
What happens if I miss an RMD?
You may owe an excise tax of 25% of the amount you should have withdrawn. It drops to 10% if you correct the mistake in a timely manner, generally within two years.
Do Roth accounts have required minimum distributions?
Not while you are alive. Roth IRAs and Roth accounts in a 401(k) or 403(b) do not require withdrawals during the owner's lifetime, although beneficiaries who inherit them do have distribution rules to follow.
Can I take my RMD from just one of my accounts?
For IRAs, yes: you figure the required amount for each IRA, then you can take the total from one or more of your IRAs. RMDs from workplace plans such as 401(k)s generally must be taken separately from each plan account.
This information is educational and is not a recommendation to roll over, convert, or withdraw from any account. Before moving retirement savings, compare all of your options, including leaving the money where it is, along with the fees, expenses, investment choices, services, and protections of each. Retirement account rules are set by federal law and are subject to change. Champion Wealth Management and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.
Let's build a retirement that lasts.
From an old 401(k) to the income that carries you through retirement, these decisions are easier with someone in your corner. Give us a call and we will map out your options together.
