Leaving the workforce changes many aspects of your 401(k), and once you retire you will have to make a number of important decisions about your retirement nest egg. If you have $1.1 million in a 401(k), you can choose to leave your retirement savings in the account, roll it over into a traditional IRA or convert to a Roth IRA. You could even withdraw it all in a lump sum, pay taxes on it and invest it in a regular brokerage account. Each of these options has financial and tax considerations that may be more or less suitable to your specific situation. Your age, assets, income and investment style will shape the strategy you choose.
If you need help creating a retirement plan, you can speak with a financial advisor to review your goals, income sources and savings options.
Strategies for 401(k) Plans in Retirement
When you leave an employer, you will need to decide how to manage your 401(k) savings. You may be able to keep the funds in your current plan, move them to a traditional IRA, or convert them to a Roth IRA.
Each choice has its own tax treatment, investment options and withdrawal rules. Understanding these differences before you retire can help you choose the approach that fits your financial goals, income needs, and overall tax situation.
Keeping a 401(k) After Leaving an Employer
Once you leave an employer, whether through retirement or another reason, you can no longer make contributions to that employer’s 401(k) plan. However, you generally may keep your existing balance in the account, allowing the invested funds to continue growing tax-deferred.
For example, assume you are age 60 with $1.1 million in your 401(k) and plan to retire at 67. If the account earns an average annual return of 7%, the future value can be calculated using the compound growth formula:
For this example, the formula inputs are as follows:
- PV = $1,100,000 (current balance)
- r = 0.07 (annual return rate)
- n = 7 (years until retirement)
Here’s the step-by-step calculation:
Step 1:
- Compute growth factor: (1+r)n = (1.07)7 = 1.605781
Step 2:
- Multiply by present value: FV = 1,100,000 × 1.605781 = $1,766,359
So by age 67, the account could grow to about $1,766,360 assuming a consistent 7% annual return and no additional contributions.
Making no changes is, of course, the easiest thing to do. And, if you’re happy with the way your $1.1 million is being handled, it may be appropriate. Before choosing this option, however, review the managers’ performance, fees and investment choices to see if they still fit your goals and needs.
Moving a 401(k) to an IRA After Leaving an Employer
If the 401(k) plan doesn’t seem like a good fit going forward, you can choose to do something else with the money. You could, for example, withdraw it all in a lump sum and then invest it through a regular brokerage account. This will give you a lot more flexibility in choosing investments, but will require paying income taxes on any withdrawn funds as if they were ordinary income.
The tax bill would be sizable. For example, if you normally have $100,000 in taxable income, withdrawing the entire $1.1 million in one year would raise your total taxable income to $1,200,000 ($1,100,000 withdrawal + $100,000 regular income). For a single filer in 2025, that amount falls into the 37% marginal income tax bracket.
| Tax Rate | Taxable Income Range | Tax Calculation | Tax Amount |
|---|---|---|---|
| 10% | $0 – $11,925 | $11,925 × 0.10 | $1,192.50 |
| 12% | $11,925 – $48,475 | ($48,475 − $11,925) × 0.12 | $4,386.00 |
| 22% | $48,475 – $103,350 | ($103,350 − $48,475) × 0.22 | $12,072.50 |
| 24% | $103,350 – $197,300 | ($197,300 − $103,350) × 0.24 | $22,548.00 |
| 32% | $197,300 – $250,525 | ($250,525 − $197,300) × 0.32 | $17,032.00 |
| 35% | $250,525 – $626,350 | ($626,350 − $250,525) × 0.35 | $131,538.75 |
| 37% | $626,350 – $1,200,000 | ($1,200,000 − $626,350) × 0.37 | $212,250.50 |
Total federal income tax: $1,192.50 + $4,386.00 + $12,072.50 + $22,548.00 + $17,032.00 + $131,538.75 + $212,250.50 = $401,020.25
Your estimated federal tax liability would be $401,020.25 on $1,200,000 of total taxable income if you withdrew the entire $1.1 million in a single year.
Making a Rollover or Roth Conversion Instead
Another option is an IRA rollover, transferring the $1.1 million into a new or existing traditional IRA. One potential benefit of this strategy is that, unlike a 401(k), you can defer taxes on the rollover itself, but new IRA contributions after retirement require earned income. A direct rollover also avoids having to pay any taxes immediately. You still will owe taxes on funds withdrawn from the IRA later on but this method allows your money to keep growing tax-free in the IRA. And, if you’re in a lower tax bracket in retirement, it could also save on taxes.
Bear in mind that you will have to withdraw the money eventually, whether you leave it in the 401(k) or roll it over into a traditional IRA. Both 401(k)s and IRAs are subject to required minimum distributions (RMDs). These are taxable and mandatory withdrawals that begin after you turn 73. RMDs limit your flexibility when it comes to withdrawing your retirement savings and, if you are in a higher tax bracket when RMDs start, may cause you to pay more taxes. RMD income can also affect your Medicare premiums and taxation of Social Security benefits.
You may instead choose to do a Roth conversion, transferring the 401(k) funds into a new Roth IRA. Roth accounts are not subject to RMD rules, and withdrawals are tax-free. However, a Roth conversion triggers income taxes in the year of conversion. The benefit is that future qualified withdrawals are tax-free. If you expect to be in a higher tax bracket after you retire, this strategy can make financial sense. However, you’ll have to make provision for paying the taxes due now, preferably with funds that didn’t come from the 401(k).
Which Option Should You Pick?
Moving your 401(k) funds to an IRA can appeal to investors who want more flexibility and oversight. An IRA typically offers a broader range of investment choices such as individual stocks, bonds, mutual funds and ETFs than an employer plan. It also allows you to consolidate multiple old 401(k)s into one account, simplifying tracking, allocation and tax reporting.
If you decide to manage your $1.1 million in retirement assets directly, your investment strategy should balance growth with income generation. Even in retirement, a portion of your portfolio may remain invested for long-term appreciation to offset inflation and extend the life of your savings. At the same time, part of your allocation may be dedicated to producing steady cash flow for living expenses.
The approach you select, whether using dividend-paying stocks, bond ladders, annuities, or diversified index funds, depends on your risk tolerance, withdrawal needs and time horizon. An investment plan that blends growth and income assets can help sustain your retirement lifestyle while managing market and longevity risk.
Bottom Line
Deciding what to do with your $1.1 million 401(k) after you retire takes planning. Once you stop working, you can no longer make contributions, and some employers may ask you to move the funds to another account, such as an IRA. Withdrawing the full balance can create a large tax bill, while rolling the money into a traditional IRA allows you to defer taxes. A Roth conversion can also be useful for long-term tax management, but it requires paying taxes on the converted amount in the year of conversion. The right choice depends on your goals, available income sources and how well your 401(k) investments have met your needs.
Retirement Planning Tips
- A financial advisor can help you determine whether you have enough saved for retirement and recommend strategies to grow your nest egg. 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.
- Mandatory RMDs can limit your flexibility when it comes to post-retirement tax planning. Estimate the amount of your future RMDs now with SmartAsset’s RMD calculator.
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