Most people spend decades carefully feeding a 401(k), watching it grow, quietly counting on it. Then they reach their 60s and discover that getting money out of the account turns out to be just as complicated as getting it in. The rules are different. The taxes hit differently. The decisions you make in the first few years of drawing down can follow you for the rest of your retirement. And some of those decisions are very hard to undo.
The average retirement savings for adults between 55 and 74 sits around $192,500 – a sharp contrast to the $1.26 million that Americans say they’d need for a comfortable retirement, according to the Northwestern Mutual 2025 Planning & Progress Study. With 11,000 Americans turning 65 every single day through 2027, and only half of boomers and Gen Xers believing they’ll be financially ready, the gap between what people have and what they need is very real.
That gap gets wider fast when 401(k) withdrawal mistakes enter the picture. The decisions people in their 60s most regret aren’t usually dramatic blunders made in a panic. They’re quieter than that – a withdrawal taken a few years too early, a tax deadline missed, a lump sum taken when it didn’t need to be. Here are the seven mistakes that come up again and again, and what to know before you make them.
1. Taking 401(k) Withdrawals Before Age 59½
The rule is clear, even if it catches people off guard. Amounts withdrawn from a 401(k) before reaching age 59½ are classified as early distributions, and the IRS charges a 10% additional tax on top of regular income taxes unless a specific exception applies. For most people in their late 50s facing a financial squeeze, that penalty feels manageable. The math, however, is brutal.
AARP warns that withdrawing from a 401(k) before age 59½ can cost between 25% and 35% of whatever you take out, once ordinary income taxes and the 10% penalty are combined. A $20,000 withdrawal, in that scenario, might net just $12,000 to $14,000 after taxes and penalties. That’s not a small hit. It’s essentially paying someone else a third of your retirement savings in exchange for early access.
Beyond the immediate cost, there’s the longer-term problem. Taking $25,000 out early at age 40, with a planned retirement at 65, means that money has 25 years to potentially grow. At a 7% average return, that same $25,000 would have become roughly $135,686 by retirement. The $25,000 may feel like a modest sum – but the future cost is far larger. The same principle applies whether you’re 40 or 58. Every dollar pulled early is a dollar that stops compounding.
The exception worth knowing: if you left your employer in or after the year you turned 55, you may not be subject to the 10% early withdrawal penalty – a provision many people miss entirely. It doesn’t eliminate income taxes, but it removes the extra penalty for those who retire or are laid off in their mid-to-late 50s.
2. Cashing Out a 401(k) Completely Instead of Rolling It Over
When people change jobs or leave the workforce, one of the worst 401(k) withdrawal mistakes they can make is simply cashing out. It feels like a windfall. It is, in fact, an expensive shortcut.
A surprisingly large share of retirees – roughly one in four – cash out the full balance of their retirement assets within one year of retiring, according to Vanguard’s How America Retires research. Those who do tend to have considerably lower pre-retirement incomes and dramatically lower retirement wealth. Still, not all cash-outs are for small amounts. While the typical retiree who cashes out takes roughly $19,000, 24% of cash-outs are for balances of $50,000 or more, and 26% involve balances that represent a full year’s worth of income or more. The same research found that 65% of plans now offer immediate eligibility for employer matching contributions – meaning workers who switch jobs and default to a lower savings rate at their new employer often quietly leave employer-match money unclaimed in the process.
A full cash-out triggers income taxes on the entire amount in the year you receive it, potentially pushing you into a significantly higher bracket than you’d otherwise be in. Rolling the balance into an IRA instead costs nothing and keeps the money growing tax-deferred. The rollover window is 60 days – miss it, and the IRS treats the distribution as taxable income, with penalties applying if you’re under 59½. 401(k) accounts don’t automatically transfer when people change jobs, which is part of why there are now an estimated 29 million forgotten or left-behind 401(k) accounts in the U.S., totaling around $1.7 trillion in assets, according to the Employee Benefit Research Institute.
3. Missing Required Minimum Distribution Deadlines
Required minimum distributions – RMDs – are the IRS’s way of making sure that money deferred in a traditional 401(k) eventually gets taxed. Per the IRS, RMDs are the minimum amounts you must withdraw each year from traditional retirement accounts, and most people must start taking them at age 73. Miss the deadline, and the consequences are immediate and expensive.
If you don’t take any distributions, or if the distributions are not large enough, the IRS charges a 25% excise tax on the amount not distributed as required. That can drop to 10% if you correct the mistake quickly, but the correction window is limited. A lot of people turn 73 with no real plan for RMDs, and the first deadline catches them unprepared.
There’s a common timing trap worth flagging. If you choose to wait until April 1 to take your first RMD, you’re required to take two RMDs in that same year – one by April 1 and one by December 31. While this allows for a delay, it can significantly increase your tax bill for that year. That double withdrawal in a single tax year can push you into a higher bracket, trigger taxation on a larger share of your Social Security benefits, and even increase your Medicare premiums the following year.
For people who don’t need their RMDs to live on, qualified charitable distributions (QCDs) and qualified longevity annuity contracts (QLACs) can both help reduce RMD obligations. A QCD allows people aged 70½ or older to transfer up to $111,000 directly from an IRA to a qualified charity in 2026 – and the amount counts toward the RMD but is excluded from taxable income.
4. Withdrawing Too Much Too Fast
Withdrawal patterns among retirees vary widely, and the amounts taken can fluctuate significantly – some withdraw nothing in certain years and large sums in others. The large, irregular pull is often the one people come to regret. Taking a big lump sum early in retirement – to pay off debt, buy a vehicle, renovate a home – can deplete a portfolio at precisely the wrong moment, especially if markets are down.
Big, lumpy withdrawals during market downturns can seriously erode the staying power of a retirement portfolio. Retirees are generally better served by drawing down in small, consistent increments wherever possible, though unexpected expenses like major health events can drive up withdrawal rates in ways that are hard to avoid.
The 4% rule – the guideline that suggests withdrawing about 4% of your portfolio annually keeps the money from running out – isn’t a guarantee, but it exists for a reason. Savers who concentrate all their money in pretax 401(k) accounts risk becoming “retirement rich but cash poor” while still working. In retirement, big balances in traditional accounts can trigger significant required withdrawals that come with both tax and Medicare consequences. Spreading retirement assets across Roth, taxable, and pretax accounts gives you far more flexibility in controlling how much taxable income you generate in any given year.
5. Not Understanding How 401(k) Withdrawals Affect Social Security Taxes
This one surprises a lot of retirees. They know their Social Security benefit amount. They know roughly what their 401(k) will produce. Many don’t connect the dots between the two – that pulling money from a traditional 401(k) can trigger taxes on Social Security income they expected to receive tax-free.
Most withdrawals from traditional retirement accounts count as taxable income, which gets added to your combined income and can push you over the income thresholds that trigger taxation of Social Security benefits. Social Security benefits may be subject to federal tax based on combined income, which includes adjusted gross income, nontaxable interest, and half of your Social Security benefits. Up to 50% of benefits become taxable if combined income exceeds $25,000 for single filers or $32,000 for joint filers. Above $34,000 single or $44,000 joint, up to 85% of benefits can be taxed.
Put simply: a retiree who takes a large 401(k) withdrawal in the same year they start Social Security may find that a significant portion of their Social Security check is suddenly taxable – effectively raising their tax bill in two directions at once. Because 401(k) distributions are treated as ordinary income, pulling larger amounts in a single year can push you into a higher bracket. Spreading withdrawals over multiple years may keep more of your income taxed at lower rates, depending on your other income sources.
6. Ignoring the Tax Bracket When Timing Withdrawals
Related to the above, but distinct: a lot of people in their 60s withdraw from their 401(k) on autopilot, pulling what they need without stopping to check where that amount lands in the tax brackets. The difference between a thoughtful withdrawal and a careless one can be thousands of dollars a year.
Under 2025 tax brackets, a married couple filing jointly stays in the 12% bracket as long as taxable income remains below $96,950 – but even a dollar above that threshold gets taxed at 22%. For 2026, that boundary shifts to $100,800. Planning withdrawals strategically to stay just below that line can make a meaningful difference in what you actually keep.
The window between retirement and age 73, when RMDs begin, is often the most tax-efficient stretch of a retiree’s life. Many people in their 60s are no longer earning a salary, so their taxable income is lower than it’s been in decades. That makes this the right time to do partial Roth conversions – moving money from a traditional 401(k) into a Roth account, paying taxes at the current lower rate, and reducing the size of future RMDs. Doing nothing during this period, then scrambling when RMDs pile on top of Social Security, is one of the most common and avoidable 20+ Common Retirement Myths Debunked people in their 60s make.
7. Not Claiming the Full Employer Match Earlier in Your Career
This one belongs in the list because people in their 60s mention it consistently when reflecting on what they’d do differently. It’s the mistake that compounds quietly over decades and lands with full force once you see your final balance.
Employer matches are free money with an instant 50% to 100% return on the contribution – and not taking the full amount means leaving a direct return on the table. The compounding effect of a missed match isn’t visible until it’s too late to fix. A worker who contributed 3% of their salary instead of 6% – specifically to capture a full 6% employer match – might look at that gap in their 40s and think it’s recoverable. By the time they’re in their 60s, they can see exactly what the difference would have been. A worker starting at $60,000 who switched jobs multiple times and accepted lower default savings rates could see their retirement nest egg shrink by tens of thousands of dollars over a career.
For people still in their 50s and early 60s who are still working, SECURE 2.0 introduced a “super catch-up” provision worth knowing about. For 2026, employees aged 60 to 63 can contribute up to $34,750 to their 401(k), thanks to the super catch-up provision that took effect in 2025. That’s a meaningful opportunity to accelerate savings in the final working years – one that many people don’t know exists until someone tells them.
Read More: Warren Buffett Issues biggest warning for anyone close to retirement
The One Regret You Can Still Avoid
The regrets above share a common thread. Almost none of them come from recklessness. They come from not knowing the rules well enough, from assuming that the accumulation phase and the withdrawal phase operate the same way, from letting default decisions make choices that deserve deliberate ones.
The 60s are not too late to change course on most of this. The period between retirement and age 73 is arguably the most strategically important stretch of your financial life. More levers are available, more flexibility exists, than most people actually use. Knowing when to pull money out, from which accounts, in what amounts, and in what order is a different skill set from knowing how to save. It’s one worth getting right.
What the people who end up with the fewest regrets tend to have in common isn’t more money or better luck. It’s that they understood the withdrawal rules before they needed them, not after. That gap between knowing and not knowing is still closeable. And closing it before age 73, not after the first RMD surprise or the unexpected tax bill, is the whole game.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.