Upticks: What Should You Do with Your 401k When You Retire?
By Luke Sullivan on July 31, 2025
What should you do with your 401(k) when you retire—and what should you avoid? From tax traps and Roth conversions to income planning and investment flexibility, Jake and Cory walk through a four-step framework to help you make smarter, more confident 401k retirement decisions. With real-world examples and practical insights, this episode helps you protect your hard-earned nest egg.
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Read an overview of the conversation below
The Hidden Complexity of 401(k) Decisions
Retirement marks a significant financial transition, and one of the most critical decisions a retiree might face is what to do with their 401(k). As Jake warns, “A single wrong move… could trigger taxes that are avoidable, penalties, and potentially destroy legacy.” Many retirees are unaware of the complexity involved in managing their 401(k) post-retirement. The challenge lies not only in accessing the funds but in doing so strategically to avoid unnecessary costs and maximize long-term benefits.
Cory emphasizes a common concern when it comes to living off of your 401(k): “This is… probably the number one challenge that people can face relating to 401(k)’s in retirement—how do I live off of it, not have to worry about running out of it, manage the taxes through all of it, and invest it properly?” The lack of a clear manual or guide often leads to analysis paralysis, where retirees do nothing out of fear of making the wrong move. Unfortunately, inaction is itself a decision—one that can be costly.
A Strategic Framework for 401(k) Management
To help retirees make smarter, more confident decisions about their 401(k), Jake outlines a four-step framework that goes beyond the simple question of whether to roll it over.
Assess the Quality of the Plan
Start by evaluating your current 401(k) plan. What are the fees? Are the investment options diverse and aligned with your goals? What services—if any—are included, such as tax planning or advisory support?
Explore Tax Planning Opportunities
Look for ways to reduce your lifetime tax burden. This includes strategies like Roth conversions, tax bracket management, and Net Unrealized Appreciation (NUA) for company stock.
Integrate with an Income Strategy
Coordinate your 401(k) withdrawals with other income sources like Social Security, pensions, and brokerage accounts. We believe in not locking funds into high-fee annuities unless absolutely necessary. Jake emphasizes, “You don’t need to use an annuity to generate an income stream… There’s a wide variety of ways to generate income.”
Decide Whether to Roll It Over
After completing the first three steps, you can decide whether to roll over your 401(k) into an IRA. Consider withdrawal flexibility, investment control, and tax withholding rules. As Jake notes, “Retirement deserves a proactive plan, not a passive leave-it-or-roll-it approach.”
Real-World Scenarios and the Rule of 55
To illustrate the complexity of 401(k) decisions, Cory shared a real-world client story involving the Rule of 55—a provision that can allow penalty-free withdrawals from a 401(k) if you leave your job in or after the year you turn 55. In this case, the client had left their employer before age 55 and needed access to funds before age 59½. Cory explained, “We actually rolled some into a new 401(k) plan and some into an IRA because it ultimately made sense in their long-term financial plan.”
This example highlights how nuanced retirement planning can be. Many people are unaware of the flexibility they may have if they understand the rules and plan accordingly. Strategic use of the Rule of 55 can provide liquidity without triggering penalties, but it requires careful coordination between different types of accounts and a clear understanding of rules and regulations.
The Annuity Debate: Income or Illusion?
While some advisors pitch annuities as a way to replace a paycheck, Jake cautions against defaulting to this strategy: “You don’t need to use an annuity to generate an income stream… There’s a wide variety of ways to generate income from your 401(k) that don’t involve annuities.” He explains that while annuities may offer structure for individuals who struggle with financial discipline, they often come with high fees, limited flexibility, and unnecessary complexity. Cory adds, “Ideally, let’s not pay a premium to lock the money up,” reinforcing their preference for more transparent, flexible income strategies like dividend-paying stocks, bonds, and REITs.
Busting the Myth: Are Company Plans Always Better?
A common misconception is that employer-sponsored 401(k) plans are always the best option due to lower fees or better performance. However, as Cory points out, “That is a pretty common widespread myth… that it’s always going to be cheaper, it’s always going to be better.” While employers promote these plans during employment, they may not be optimal post-retirement. Jake adds, “You’ve also been maxing it out for 40 years, and you’ve actually only been making 4% a year,” highlighting that performance and cost-effectiveness should be scrutinized.
The reality is that 401(k) plans can lack transparency, flexibility, and personalized advice. Retirees should not assume that what worked during their career will continue to serve them well in retirement. Instead, they should adopt a proactive approach, using a structured framework to make informed decisions that align with their individual financial goals and lifestyle. As Jake concludes, “Retirement deserves a proactive plan, not a passive leave-it-or-roll-it approach.”
Thank you for tuning in, we hope you have a great week!
