Taxes don’t stop when your paycheck does. In fact, tapping your retirement nest egg comes with all sorts of new rules and opportunities.
When you retire, your life changes in many ways — and so do your finances. One of the biggest changes is that instead of contributing to tax-deferred retirement savings plans that reduce your taxes, you’ll start tapping those savings for income and paying taxes at your regular rate (unless you’re tapping a Roth account) — not the preferential capital-gains rate reserved for stocks and bonds held in taxable accounts.
What to Do with Your 401(k)
One of the first decisions you’ll have to make is what to do with the savings you have accumulated in your 401(k) or similar workplace-based retirement plan. As long as you have a balance of $5,000 or more, you can keep it with your former employer until the plan’s normal retirement age (often 65) or, in some cases, until you reach age 70 1/2. You might want to do that if you like the investment choices and the low fees of your employer’s plan.
And if you are at least 55 by the end of the year in which you leave your job, you can start tapping your 401(k) funds penalty free — although you’ll still owe income taxes on your withdrawals. If you roll the money over to an IRA, where you will have more investment choices, you must be at least 59½ to avoid early withdrawal penalties when taking money out of the account.
Read more at https://www.kiplinger.com/article/retirement/T055-C000-S001-planning-your-retirement-tax-strategy.html
