Most people spend their final working months counting down days, not dollars. They picture the celebration, the last commute, maybe a trip they’ve been postponing for years. What they don’t tend to picture is the quiet, complicated machinery running beneath their 401(k), machinery that keeps ticking whether you pay attention to it or not, and machinery that, in the six months before you retire, really needs your attention.
The gap between a good retirement and a stressful one isn’t always dramatic. It often comes down to a handful of decisions made, or missed, in the months just before someone stops working. Decisions about when to stop contributing, how their money is positioned, what taxes are about to arrive, and whether they’ve picked up every dollar the rules now allow them to have.
There’s one rule that sits at the center of all of this. And because Congress changed the rules significantly over the last few years, a lot of people who are retirement-eligible right now are operating with an outdated picture of what their 401(k) can actually do for them.
The Core Rule That Governs Almost Everything
The single most important concept for anyone within six months of retirement is not really one rule. It’s a cluster of linked decisions that all radiate out from the same question: when you stop working, what happens to the money in your 401(k)?
The IRS has a specific framework for this, and it begins before you ever hand in your notice. Required Minimum Distributions (RMDs) are the minimum amounts that IRA and retirement plan account owners generally must withdraw annually starting with the year they reach age 73. For defined contribution plans like the 401(k), plan participants can delay taking their RMDs until the year in which they retire, unless they’re a 5% or greater owner of the business sponsoring the plan. That delay option is one that many people close to retirement don’t know they have, and understanding it can meaningfully change how you plan your first year of retirement income.
You must take your first required minimum distribution for the year in which you reach age 73. However, you can delay taking the first RMD until April 1 of the following year. That sounds like a benefit, and it can be. But it comes with a real catch.
Just because you can delay your first distribution doesn’t mean you should. Pushing your first distribution into the next calendar year would mean you’d have to take two RMDs that year, which could saddle you with more taxable income and therefore a bigger tax bill. In other words, if you turn age 73 in 2026, you could wait until April 1 of 2027 to take your first RMD, but then you would also need to take your 2027 RMD by December 31.
Taking two mandatory withdrawals in a single tax year can bump you into a higher bracket, increase what you pay for Medicare, and even change how much of your Social Security benefits gets taxed. The six months before you retire is exactly when you need to decide which path makes more sense for your income situation.
The Penalty You Really Don’t Want to Meet
Missing an RMD isn’t a small administrative hiccup. If you don’t take any distributions, or if the distributions are not large enough, you may have to pay a 25% excise tax on the amount not distributed as required. That means if you were supposed to withdraw $20,000 and you didn’t, the IRS is owed $5,000 on top of everything else. That said, if you correct the issue by taking your full withdrawal and filing IRS Form 5329, along with a letter of explanation, the IRS may lower the penalty to 10%.
The fact that a correction pathway exists is some comfort. But needing it is avoidable if you build a timeline before your retirement date, not after.
The Super Catch-Up Window That Closes Faster Than People Realize
If you’re between the ages of 60 and 63 and still working, you may be sitting on a savings opportunity that the majority of Americans don’t know exists.
A super catch-up contribution, originating from the SECURE 2.0 Act of 2022, is a higher catch-up contribution amount available to you if you’re age 60 to 63 and are enrolled in a participating retirement plan. Super catch-up contributions are designed to help those age 60 to 63 maximize their savings as they get closer to retirement.
The numbers are meaningful. The IRS announced that the amount individuals can contribute to their 401(k) plans in 2026 has increased to $24,500, up from $23,500 for 2025. For those aged 50 and over, the catch-up contribution limit is $8,000, meaning participants in most 401(k) and 403(b) plans who are 50 and older can generally contribute up to $32,500 each year starting in 2026. But if you’re in the 60-to-63 age bracket, the rules are different, and considerably more generous.
Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62, and 63 who participate in these plans. For 2026, this higher catch-up contribution limit is $11,250 instead of the standard $8,000. That means, if your plan allows it, some workers could save as much as $35,750 in a 401(k) plan in 2026, before employer matching contributions.
This window is real, but it’s narrow. To qualify for the enhanced catch-up contributions, participants must be 60, 61, 62, or 63 by the end of the calendar year, and generally must have already contributed the maximum deferral amount. Once participants turn 64, they revert to the standard age 50+ catch-up contribution limit.
One critical step before assuming you qualify: to take advantage of these higher limits, workers may need to adjust payroll elections and confirm their employer has adopted SECURE 2.0 provisions. The super catch-up is optional for employers. If your company’s HR team hasn’t activated it, you simply won’t be able to use it, regardless of your age. A quick conversation with your plan administrator can confirm it one way or the other.
For anyone in this age bracket who is planning to retire within six months, the priority is to push contributions as high as possible in the time remaining. The rationale behind the super catch-up recognizes a simple reality: the years immediately before retirement are often when people have the most capacity to save. Kids have finished college, mortgages are paid off or nearly so, and earnings are typically at their peak. At the same time, these are the final years to meaningfully impact a retirement portfolio.
If you want to understand how the broader SECURE 2.0 changes work together and what else changed in recent years, the 401(k) rules that changed in 2025 covers those updates in detail.
Roth Catch-Up: The New Requirement High Earners Need to Know
There’s another layer to the catch-up story that applies specifically if you’re a higher earner. Due to a provision in SECURE 2.0, high-income earners who make more than $150,000 in wages from the prior year are required to make their catch-up contributions as Roth (after-tax) beginning on January 1, 2026.
This isn’t necessarily bad news. Roth contributions are made with after-tax dollars, meaning qualified withdrawals in retirement are tax-free. But if you’ve always made pre-tax catch-up contributions, the shift changes your take-home pay slightly in the near term, since taxes are paid upfront. For some workers, this may slightly reduce take-home pay because taxes are due now rather than later, though future qualified withdrawals would be tax-free.
The practical takeaway: if you earned more than $150,000 in the previous year and you’re planning to make catch-up contributions in 2026, speak with your plan administrator now to confirm your plan has the Roth option enabled. Starting in 2026, 401(k) plans must offer Roth contributions for high earners to make catch-up contributions at all.
Rebalancing: The Step Most Pre-Retirees Skip
Contribution strategy gets a lot of attention. Portfolio positioning often does not, even though a badly positioned portfolio in the months before retirement can do real and lasting damage.
Your investment timeline is always evolving. An asset allocation that made sense when retirement was 20 years away may not be appropriate when retirement is only five years out. A portfolio that once leaned heavily on growth may now need to focus more on preserving capital.
This matters because of something called sequence of returns risk. The first decade of retirement carries disproportionate weight because withdrawals begin at the same time markets remain unpredictable. When negative returns occur early while income is being withdrawn, the portfolio loses capital that no longer has time to recover through compounding. Even when long-term average market returns appear reasonable on paper, retirees who experience a bad stretch of losses in those first few years can find their money doesn’t last as long as projected.
Rebalancing is how you manage that exposure. Without periodic rebalancing, your investment mix will drift as the market fluctuates, falling out of alignment with your target allocation. In most cases, rebalancing your portfolio once every three to six months is appropriate.
Selling investments inside your 401(k), IRA, and Roth IRA won’t create tax consequences unless you choose to withdraw money. That makes the 401(k) one of the cleanest places to rebalance. You can shift from a growth-heavy mix toward a more conservative allocation without triggering a taxable event. Within six months of retirement, that should be one of the items on your to-do list.
Read More: 5 Mistakes to Avoid in Your First Year of Retirement
Building a Tax-Smart Withdrawal Strategy Now
Most people think about withdrawing from their 401(k) as something they’ll figure out when the time comes. Financial planners largely disagree. The decisions you make about withdrawal sequencing before you retire, specifically in those final months, can save tens of thousands of dollars in taxes over the course of your retirement.
In retirement, pulling from multiple account types in a sequence that keeps you in a favorable tax bracket helps control Medicare premiums and other income-based thresholds. In a high-income year, you might draw more from Roth assets to avoid pushing income into a higher bracket. In lower-income years, drawing more from taxable or tax-deferred accounts can help rebalance the tax mix.
By spreading out taxable income more evenly over retirement, you may also be able to reduce the taxes you pay on Social Security benefits and the premiums you pay on Medicare. This is not a theoretical benefit. Medicare surcharges, known as IRMAA (Income-Related Monthly Adjustment Amount), are triggered when your income from sources like 401(k) withdrawals pushes you above certain thresholds. Those surcharges can add hundreds of dollars per month to your Medicare bill.
You can also time the size and sequence of your voluntary withdrawals in the years before RMDs kick in to reduce the mandatory amount later. Taking moderate voluntary withdrawals in your 60s reduces your account balance, which in turn reduces your future RMD amounts. This is a strategy that requires forward thinking, but six months out is a perfectly reasonable time to start running the numbers.
What to Do Now
The six months before you retire are not the time to coast. They’re the window to act on the rules that will shape the next 20 to 30 years of your financial life.
Start with the super catch-up. If you’re between 60 and 63, confirm your plan has activated the SECURE 2.0 provision and adjust your payroll deductions to take full advantage of the higher contribution limits before your last day at work. Even one or two years of maximum contributions can add $35,000 to $70,000 or more to your retirement savings. That money will continue to grow tax-deferred, or tax-free if Roth, throughout your retirement.
Next, sort out your RMD timeline. If you’re approaching age 73, the smartest move for most people is to take your first distribution before December 31 of the year you turn 73, rather than delaying to the following April. Doing so keeps two years of taxable RMDs from stacking into a single tax year, which can push your income into a higher bracket and raise your Medicare costs. If you’re still working past 73 and your plan allows it, the delay from your workplace plan remains available, though this option isn’t available for IRAs.
Review your portfolio allocation. If you haven’t rebalanced in the last year, your mix may be carrying more risk than you intend. A portfolio that has drifted heavily toward stocks could expose you to a rough sequence of returns right when you need your money most. Rebalancing now helps you stay aligned with your chosen risk level before you stop receiving a paycheck.
Finally, speak with a fee-only financial planner or tax professional before your retirement date. The interaction between 401(k) withdrawals, Social Security, Medicare surcharges, and future withdrawal timing is genuinely complex. Getting a second set of eyes on your numbers before you retire, rather than after, is one of the few decisions in this process that is almost universally worth it. A couple of hours with the right professional now could save you far more than their fee over a retirement that spans two or three decades.
Disclaimer: This information is not intended to be a substitute for professional financial advice, investment advice, tax advice, or legal advice, and is provided for informational purposes only. Always seek the guidance of a qualified financial advisor, accountant, or other licensed professional regarding your personal financial situation or investment decisions. Do not make financial, investment, or tax decisions based solely on information presented here. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.
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