The statement on the table is the one to read. Not a caller.
A rollover is a transfer. Cashing the check and holding it in the kitchen is a different decision, and often a taxable one.
A 401(k) is not a coupon and not a product you “activate.” It is a workplace savings account with a tax wrapper. While you were earning, the useful question was how much to put in. After the paycheck thins or stops, the useful question changes: do I need this money this year, and what happens to the tax bill if I take it?
If you are still putting money in
For 2026, the IRS set the employee deferral limit at $24,500. If you are 50 or older and the plan allows it, the usual catch-up is $8,000, which puts the general ceiling at $32,500. At ages 60, 61, 62, and 63, a higher catch-up of $11,250 applies instead of the $8,000, again only if the plan permits it. These figures move. The plan, not a newsletter, knows whether you are allowed to use them.
Traditional contributions generally go in before tax and are taxed when you take them out. Roth contributions go in after tax, and qualified withdrawals can come out tax-free. Many people have some of each and have never sorted which dollars are which. The statement will say. If it does not, call the number printed on it and ask for the split in writing.
When the paycheck is gone
You usually have three families of choice. Leave the money in the plan, if the plan allows small balances to stay. Roll it to an IRA, which is a transfer, not a decision to spend. Or withdraw it and use it. Those are not the same act. A direct rollover moves from one custodian to another. A check made out to you that sits on the counter can become a taxable distribution, and the clock to complete an indirect rollover is short. If a rollover is what you meant, say the word “direct” and have the two institutions talk.
Withdrawals from the traditional side are generally ordinary income. A large one can lift you into a higher bracket for the year, and higher income can also raise what you pay for Medicare through the surcharge known as IRMAA. That is a reason to ask a tax preparer before a lump sum. It is not a reason to ignore a withdrawal the IRS requires. The companion piece in this issue walks through that required withdrawal.
After 59½, the extra 10 percent early-withdrawal tax is usually no longer the issue. At seventy, the issues are income tax, Medicare premiums, and — once you reach the required age — taking at least the minimum on time. If you are still working at the company that sponsors this particular plan, and you are not a 5 percent owner, some plans let you delay that plan’s required withdrawal until you retire. An old 401(k) at a job you left, and a traditional IRA, generally do not wait with you. Ask, and ask about the specific account.
Hang up
A real plan, the Social Security Administration, and the IRS do not demand a gift card, a code texted to your phone, or secrecy from your children. If a caller knows the last four digits of your Social Security number, that is not proof they are official. Hang up. Call the number on your statement or on a bill you already trust.
Before you touch the account, write down three answers. Do I need this money to live on this year? What will the withdrawal do to my tax return and my Medicare premium? Is this the account the rules are pointing at, or a different one I am mixing up with it? Then call the plan. Ask for the withdrawal options in plain language: installment, lump sum, or rollover. You are allowed to say, “Please send that in writing. I will decide next week.”
Sources to read yourself
A note from the desk
This is general education, not tax, legal, or investment advice. Rules change, and your plan document controls your account. Before you move money, ask the plan administrator or a tax professional.