Retirement Retirement Planning

The 401(k) Rule That Matters Most Once You're Within 4 Years of Retirement

This will help you avoid costly mistakes when you retire.

By Chris Lewis, CEPF , Edited by Laura Hohenstein

Updated Aug. 13, 2026

Add Us On Google

Your last year of work is an incredibly exciting time. After all, you're almost at the finish line, which you've been working towards your entire career. Your last year of work before retirement is also one filled with big decisions.

One of the most important decisions is making a withdrawal strategy, which includes timing when you'll use the money accumulated in your retirement plan. There are many things to consider, including required minimum distributions, Roth conversions, and tax considerations.

Here is some more information about what you need to do to prepare for retirement during your final year of employment.

Set up direct deposit - pocket $400

Set up an eligible direct deposit with SoFi Checking and Savings and you could pocket a bonus of up to $400. Make the switch, set up direct deposit, earn the bonus. It basically takes no extra work at all other than following these steps.

Why people are switching: This account earns up to an insane 4.00% APY¹ Earn up to 4.00% Annual Percentage Yield (APY) on one SoFi Savings account with a 0.90% APY Boost (added to the 3.10% APY as of 5/28/26) for up to 6 months. Open your first SoFi Checking and Savings account and receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 12/31/26. Rates are variable, subject to change. Terms apply at <a href="https://www.sofi.com/banking/#4">sofi.com/banking#4</a>. SoFi Bank, N.A. Member FDIC. on savings for up to six months (3.10% APY standard + 0.90% APY boost) on top of that $50 or $400 bonus.² New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Eligible Direct Deposits received within 25 calendar days of your first Eligible Direct Deposit of $1 or more) OR $400 (with at least $5,000 total Eligible Direct Deposits received within 25 calendar days of your first Eligible Direct Deposit of $1 or more). Cash bonus amount will be based on the total amount of Eligible Direct Deposit received within 25 calendar days of your first Eligible Direct Deposit of $1 or more. If you have satisfied the Eligible Direct Deposit requirements but have not received a cash bonus in your Checking account, please contact us at 855-456-7634 with the details of your Eligible Direct Deposit. Direct Deposit Promotion begins on 5/15/2026 and will be available through 12/31/26. See full bonus and annual percentage yield (APY) terms at <a href="https://www.sofi.com/banking/checking-offer/">sofi.com/banking/checking-offer/</a> That's way better than the measly 0.38% APY (as of 06/15/26)³ Based on <a href="https://www.fdic.gov/national-rates-and-rate-caps">this</a> FDIC data, as of 6/15/26. national average savings accounts offer.

No monthly fees and no surprises. Open your account and earn up to a $400 bonus

The importance of RMDs, including new 2026 rules

An RMD is a required minimum distribution that retirees must take from their retirement accounts. While the RMD age used to be 72, the SECURE 2.0 Act raised the age to 73, and it is going to rise again to 75 in 2033.

Retirees have a choice when it comes to their first required RMD. They could either take their first distribution the year they turn 73 or delay it until April 1 of the year after. This choice is a bit more complex than it seems on the surface.

Shopping for cheaper auto insurance? Enter your zip code here to get started.

Why workers need to time their retirement and first RMD

Delaying your first RMD sounds appealing because it gives your retirement accounts even more time to grow and compound.

However, it means taking two full RMDs in the same calendar year, which could push you into a higher tax bracket. This could be problematic when it comes to other important retirement costs, such as Medicare IRMAA surcharges.

How to avoid the two RMDs in one year trap

The best way to avoid these Medicare IRMAA surcharges in the future is to take the time to plan when you'll take your first RMD. Your final year of work is a good time to map out your strategy and seek help from a professional if you need it. Planning ahead like this could make your transition into retirement smoother and your income more predictable.

The goal is to balance having enough income to meet your needs in retirement while also ensuring you aren't paying too much in taxes (which could cut into your cash flow).

If you’re over 50, take advantage of massive discounts and financial resources

Over 50? Join AARP today— because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.

Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up to 25% off your AARP membership, making it just $15 the first year with auto-renewal.

Employees who work until age 73 are a unique exception

There is one interesting exception to the RMD rules. If you're still working at age 73 (and don't own 5% or more of the business yourself), then you could delay RMDs until you decide to officially retire.

The important caveat is that this doesn't apply if you have old 401(k)s from other employers or a Traditional IRA. It's only for the 401(k) you have and are contributing to at your current job.

The final-chance Roth conversion window

Because many people stop working somewhere in the middle of their last year of retirement, that lower annual income sometimes makes them eligible to convert 401(k)s to a Roth IRA without using a backdoor Roth IRA strategy.

For most retirees, the final year of work will be the last opportunity to contribute to a Roth, as you have to have earned taxable income in order to do so.

Tips to ease the transition to a fixed retirement income

In addition to planning your retirement withdrawal strategy, another tip to ease your transition and eliminate some money stress is to practice living on your retirement income in your last year of work. Many people live on less during retirement than they did during their working years.

To prepare, start tracking expenses and allocating a certain amount each month to live on, so that the transition to retirement is smoother. Consider using any extra funds you may have in your last year of work to reduce high-interest debt, so you have fewer payments in retirement.

Retirement News: Almost 80% of Americans fear a retirement age increase — here’s the real reason why

Where to get advice on your last year of employment

Even if you've never worked with a financial advisor before, getting advice during your last year of work could help you map out your income and withdrawal plan as you transition to retirement.

A financial planner could help you choose which accounts to withdraw from first and decide whether or not you should delay your first RMD.

Bottom line

Ultimately, in order to have a stress-free retirement, taking the time to prepare yourself financially for it is essential. That includes mapping out your withdrawal strategy, including when you plan to take RMDs from your 401(k).

Retirement is an exciting time for many people and something employees work towards all their lives. However, not being prepared for RMDs and potentially higher tax bills could put a damper on your early retirement years. That's why it's essential to consult a financial planner if you want to start planning during your final year of work.

More from FinanceBuzz: