Retirement Retirement Planning

The Key 401(k) Rule To Follow 1 Year Before You Retire

This can help your transition into your retirement years.

By Chris Lewis, CEPF , Edited by Laura Hohenstein

Updated Sept. 22, 2026

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During your last 12 months of working, there are some important 401(k) rules to consider following. One of the biggest ones is making sure that you shift your portfolio from a growth and accumulation phase to a preservation and protection stage.

Doing that, along with making sure you're prepared to transition to a fixed income, can help you make your 401(k) retirement plan last for many decades.

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Many successful investors eventually reach the same moment. The saving is done, the portfolio is built, and the question quietly changes from how much can I grow this to how much can I take out? Get that second question wrong and decades of good investing can come apart in a handful of years.

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The 401(k) rule that matters most

When you are within one year of retirement, it's important to lock in an asset allocation that reflects your withdrawal needs in your golden years. Previously, you may have focused on growth and maximizing your returns. Now that you are nearing retirement, most financial experts recommend that you choose a more conservative asset allocation.

For example, Charles Schwab recommends that if you're age 60-69, consider having 60% stocks, 35% bonds, and 5% cash in your portfolio.

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Take the time to understand your 401(k) distribution options

When you leave work, you have several options for your 401(k). For example, you can leave it with your employer, cash it out, or roll it into a self-directed IRA.

Understanding your plan options and the benefits and drawbacks for each one is an important step to take during your final year with your employer.

Double-check your vesting status

Another important step during your last year of work is to confirm your vesting status. Being fully vested in your 401(k) means that you have worked long enough to have complete ownership over both the funds you contributed to your account as well as any employer matching funds that you receive.

Some employers offer immediate vesting to their employees, but others have different requirements. Make sure that you have met these requirements before leaving; otherwise, you could lose a portion of your 401(k).

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New catch-up contribution rules for 401(k)s

New rules mean that workers can contribute even more to their 401(k)s once they reach age 50. At 50, you can add an additional $8,000 in addition to the $24,500 401(k) maximum. If you're aged 60 to 63, you can contribute an extra $11,250.

Your last year of working is also your last opportunity to take advantage of these higher catch-up contribution rates.

Get up to date on the most recent RMD policy updates

RMD stands for Required Minimum Distribution. Everyone must take an RMD by age 73 according to the law. The SECURE 2.0 Act raised the age from 72 to 73, and in 2033, it will increase to 75. Interestingly, workers who are still employed past this age can delay RMDs as long as they don't own more than 5% of the business where they work.

Meet with professionals to review taxes and estate plans

If you have questions about your retirement preparedness or you want to make sure you're on the right track, set up meetings with professionals who can help.

For example, a financial advisor can help you make sure you're financially prepared for retirement, including reviewing your insurance options and updating your beneficiary designations.

An accountant can help you understand how your taxes will change in retirement, and a lawyer can help you create or update your will and estate plan. Completing these tasks can help you feel organized as you transition to stopping work.

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What to know about switching to a fixed income

Many people find it challenging to switch to a fixed income in retirement. When you're working, you consistently get paychecks, which feels secure. However, in retirement, instead of getting paychecks, each withdrawal you make drains your retirement account. This can lead to stress because people worry about running out of money.

What may help is practicing living on your retirement income during your last year of working. This can help you get used to living on a smaller budget in your golden years and help you free up your retirement budget.

Bottom line

With only one year left before retirement, use this time to research and plan. Project your actual Social Security estimates, research what your taxes will be, practice living on a budget, and make an appointment with a financial planner if you have questions.

These steps can help you transition into retirement and hopefully enjoy many financially fit days in the future.

Editor's note: This article is for informational purposes only and should not be considered investment advice.

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