How to Withdraw From Your 401(k) After Age 60

Reaching age 60 is a major financial milestone, particularly when it comes to your 401(k) retirement savings. While you can access your 401(k) without penalties after age 59 ½, there are important rules, strategies and tax implications to keep in mind. As you near or enter retirement, you’ll likely begin to consider how and when to start taking withdrawals. Managing your 401(k) distributions effectively is key to ensuring your savings last and supporting your retirement lifestyle.

A financial advisor can help you develop a withdrawal strategy that supports your financial security and long-term goals.

Withdrawing From a 401(k) After Age 60

Once you turn 59 ½, you can begin making withdrawals from your 401(k) without facing the 10% early withdrawal penalty that applies to younger account holders. However, you’ll still owe ordinary income taxes on any distributions from a traditional 401(k). It’s different if you have Roth 401(k) contributions, which can be withdrawn tax-free if you’ve met the five-year holding requirement.

If you reach 60 with a 401(k) balance, here are some important rules to keep in mind:

• No early withdrawal penalty: After age 59 ½, you can withdraw freely without paying the 10% penalty, although income taxes still apply.
• Required minimum distributions (RMDs): You must begin taking required minimum distributions (RMDs) from your 401(k) by April 1 following the year you turn 73. The rules for RMDs are somewhat complex, but it’s important to follow them. Failure to properly take RMDs can result in steep penalties.
• Separation from service rule: If you leave your job at age 55 or older, you can start withdrawing from your current employer’s 401(k) without paying the early withdrawal penalty. This is called the Rule of 55, and it can provide additional flexibility if you retire early.

5 Withdrawal Strategies to Consider After 60

Choosing the right withdrawal strategy is key when it comes to maximizing your retirement income and minimizing taxes. Depending on your financial situation, one or more of the following approaches may work for you.

1. Regular Distributions

Setting up regular distributions (monthly, quarterly or annually) is one of the most popular ways to manage 401(k) withdrawals. Many retirees schedule payments that mimic a paycheck, providing a steady and predictable income stream.

You can typically arrange for systematic withdrawals directly through your 401(k) plan provider. You’ll choose the amount and frequency of payments. This strategy helps with budgeting and can reduce the temptation to overspend that could result from taking larger amounts less frequently.

When you take qualified distributions from a 401(k), the amount withdrawn is taxed as ordinary income in the year you receive it. These distributions can increase your taxable income and may impact your eligibility for certain tax credits or deductions. They can also increase your Medicare premiums if your income crosses specific thresholds. Given these concerns, it’s important to plan your withdrawals carefully to avoid surprises.

Pros:

• Creates a predictable income stream.
• Helps with budgeting and planning.

Cons:

• May not automatically adjust for inflation unless you periodically increase your withdrawal amount.
• Can reduce flexibility if unexpected expenses arise.

2. Rollover to Another Retirement Account

Many retirees choose to roll over their 401(k) balance into an IRA once they leave their employer. IRAs may be preferable, as they often offer a wider range of investment options and more flexible withdrawal strategies.

You complete a direct rollover by moving your 401(k) funds into a traditional IRA. Once that’s completed, you can customize withdrawals based on your retirement needs.

A direct rollover from a 401(k) to a traditional IRA is not a taxable event. However, once you begin withdrawing from the IRA, those distributions are taxed as ordinary income. If you conduct an indirect rollover (where the money is paid to you first), then 20% is typically withheld for taxes, unless you redeposit the full amount within 60 days. For this reason, a direct rollover is generally preferred.

Pros:

• Greater control over investments and withdrawals.
• Potential for lower fees compared to some employer 401(k) plans.

Cons:

• Must follow RMD rules starting at age 73.
• Potential for higher investment risk if not managed carefully.

3. Lump Sum Withdrawal

Some retirees opt to take a lump sum distribution from their 401(k) account, withdrawing some or all of the balance at once. While this may be appealing for paying off large debts or making a major purchase, it can have significant tax consequences.

The withdrawn amount will be taxed as ordinary income in the year it is withdrawn, which could push you into a higher tax bracket. Depending on the size of the distribution, you might also be subject to higher Medicare premiums and the 3.8% Net Investment Income Tax (NIIT) if your income crosses certain thresholds.

Pros:

• Immediate access to up to your full retirement savings.
• Flexibility to use the funds however you wish.

Cons:

• Large tax bill, potentially pushing you into a higher tax bracket.
• Risk of spending down assets too quickly.
• Opportunity cost from exiting the market and potentially missing future investment growth.

4. Limit Withdrawals to RMDs

If you’re well-covered by other sources of retirement income, you could opt to leave as much of your funds invested in your 401(k) as possible, only taking RMDs as mandated. This will also preserve the account longer than taking regular withdrawals starting at age 59 ½. 

RMDs are still taxed as ordinary income, though, meaning they still could push up your tax bill, depending on your other sources of income. There are, however, strategies to reduce your RMDs that you could employ, such as donating to charity.

Pros:

• Allows funds to stay invested. 
• Preserves the account balance for longer.

Cons:

• Amount of withdrawals dictated by IRS rules. 
• Income tax still applies on distributions.

Use our RMD calculator below to estimate how much you’ll need to withdraw this year.

5. Gradual Roth Conversions

After age 60, some retirees use their lower-income years to shift part of their pre-tax retirement savings into a Roth IRA. This involves converting a portion of a traditional 401(k) or IRA balance each year and paying income tax on the converted amount at today’s rates. The benefit is that future withdrawals from the Roth, once qualified, are not taxed.

This strategy is often used before required minimum distributions begin, when retirees may have more control over their taxable income. Instead of converting a large balance at once, spreading conversions across multiple years can limit exposure to higher tax brackets. The goal is not short-term income, but long-term tax positioning and flexibility later in retirement.

Income thresholds matter. Roth conversions increase adjusted gross income, which can affect Medicare Part B and Part D premiums and the taxation of Social Security benefits. Because of this, retirees often target conversion amounts that stay within specific income ranges rather than maximizing conversions in a single year.

Pros:

• Lowers future taxable withdrawals by shrinking pre-tax balances.
• Builds tax-free assets that are not subject to lifetime RMDs.

Cons:

• Creates an immediate tax liability in conversion years.
• Can raise healthcare premiums or benefit taxation if income limits are crossed.

Bottom Line

Withdrawing from your 401(k) after age 60 opens up a wide range of possibilities for managing your retirement income. Whether you opt for regular distributions, a rollover to an IRA or another approach, it’s a good idea to carefully consider the tax implications, your long-term income needs and your risk tolerance. Each strategy has its benefits and trade-offs, so personalizing your plan is crucial. A financial advisor can help you develop a withdrawal strategy that helps ensure you enjoy a financially secure retirement.

An important reason these choices open up after age 60 is that the IRS removes the early-withdrawal penalty while still allowing additional years of tax-deferred growth.

“Your withdrawal options for a 401(k) expand considerably after age 60, since distributions no longer trigger a penalty. RMD rules don’t require you to take withdrawals from your account until after you turn 73. Unless you need the money sooner than retirement, it’s a good idea to keep your 401(k) balance invested for maximum growth,” said Tanza Loudenback, CFP®.

Tanza Loudenback, Certified Financial Planner™ (CFP®), provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Tips for Retirement Planning

• How confident are you that your portfolio is positioned for today’s economy? A financial advisor can help you keep your portfolio on pace to reach your long-term goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• A retirement calculator can help you better understand how much you might need to save for retirement.

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