Introduction — What you will learn and who this is for

This updated guide shows retirement planners and soon-to-be retirees how to use the first five years of retirement (or partial retirement) to shape long-term tax outcomes, cash flow and optionality. It keeps the original five-year sequencing framework—protect essential cash flow, match health coverage, sequence withdrawals, use Roth conversions tactically, and defer Social Security when sensible—but adds current 2026 rules, recent legislative changes, practical checklists, and real-world considerations for pensions, QLACs and Medicare surcharges.

Who this is for: retirees, pre-retirees within 0–24 months of leaving work, and DIY planners who manage multiple retirement accounts, pensions or expected large taxable events.

Prerequisites / Context: What you should know first

Before using the roadmap you should:

  • Have up-to-date account statements for 401(k)s, IRAs, Roth IRAs, taxable brokerage and pension documents.
  • Know the effective Required Minimum Distribution (RMD) rules in force: pursuant to SECURE Act 2.0 (2022), the RMD age is currently 73 for most taxpayers (effective 2023) and will increase to 75 in 2033—confirm your exact start year with your tax advisor based on birth year.
  • Understand Qualified Longevity Annuity Contract (QLAC) limits changed under SECURE 2.0: the in-plan QLAC premium limit is the lesser of $200,000 (indexed) or 25% of the account balance—QLACs can help delay RMDs and provide lifetime income.
  • Recognize Roth IRAs remain free of lifetime RMDs, while employer Roth accounts may still have plan-specific RMD rules unless rolled to a Roth IRA—verify with your plan administrator.
  • Be tracking Medicare IRMAA and Part B/D premium thresholds—these are reported based on prior-year MAGI and can be materially affected by Roth conversions or large distributions.

Why the first five years still matter (2026 perspective)

The immediate post-work window remains the most powerful time to shape taxes and optionality. Two developments make this window even more consequential in 2026:

  • RMD age is higher but unavoidable: With the RMD age at 73 for most people, many retirees have 2–5 years of pre-RMD breathing room to execute Roth conversions and reallocate tax-deferred balances.
  • QLACs and in-plan annuities are more widely available: Plan sponsors and insurers have expanded in-plan longevity annuity options since SECURE 2.0. That expands choices for partial annuitization as a risk-management tool.

Overview: The five-year sequencing framework (updated)

Use this priority framework as your starting point; customize it to account balances, health coverage timing, and pension terms.

  1. Protect essential cash flow from stable sources (pension, part-time wages, annuity) and keep a 12–24 month liquid buffer in cash or short-term Treasuries.
  2. Match health insurance and Medicare timing to avoid gaps and unexpected IRMAA or premium increases.
  3. Sequence withdrawals to manage taxable income—use taxable assets first for discretionary needs, tax-deferred accounts next, and preserve Roth IRA principal where appropriate.
  4. Use targeted Roth conversions in deliberately low-income years to reduce future RMDs and long-term tax drag, being mindful of Medicare and ACA/IRMAA thresholds.
  5. Delay Social Security if you can afford to; make claiming decisions after observing actual post-retirement income for 1–3 years and after applying the Roth conversion plan’s tax effects.

Before you retire (12–24 months): set the baseline

  1. Run cash-flow scenarios. Build a monthly budget split into essentials vs discretionary. Identify the guaranteed income floor you need (pension + part-time wages + withdrawals).
  2. Confirm plan rules and options. Ask your 401(k) administrator for in-service distribution rules, annuity-in-plan availability, QLAC options and creditor protection specifics. Obtain a written pension actuarial statement if a lump-sum is offered.
  3. Project Social Security break-evens. Use SSA.gov calculators to compare claiming ages; document projected benefits at 62, Full Retirement Age and 70 so you can quantify trade-offs.
  4. Build tax projections for multiple scenarios. Model at least three paths: (A) claim Social Security early, (B) defer Social Security and execute staged Roth conversions, (C) elect pension lump sum vs annuity. Use current IRS brackets for 2026 (your tax software or CPA will have them).
  5. Set beneficiary and legal housekeeping. Update beneficiary designations, confirm survivor options on pensions and annuities, and ensure powers of attorney and health directives are current.

Year 0–1 (Months 0–12): create breathing room and measure real income

Focus on liquidity and evidence-gathering. Don’t front-load decisions without data.

  1. Establish a 12–24 month cash reserve in a high-yield savings or ultra-short Treasury product to avoid forced taxable withdrawals during downturns. With higher short-term rates since 2022, short-dated Treasury bills and high-yield savings accounts are reasonable places for buffer funds.
  2. Delay Social Security if practical. Deferring to delay credits often makes sense if a portfolio or pension income covers essentials; delaying also creates low-income years useful for Roth conversions.
  3. Use taxable accounts first for discretionary spending. Taxable assets allow tax-loss harvesting and preserve tax-deferred balances for strategic conversion windows.
  4. Take conservative early tax-deferred withdrawals only when necessary. If first-year taxable income is low, plan small Roth conversions that stay within a lower tax bracket rather than taking large taxable 401(k)/IRA distributions.
  5. Confirm pension start rules. Some plans allow short deferrals or lump-sum recalculations—lock decisions after you see cash flow and tax reality for 6–12 months.

Year 2–3 (Months 13–36): tax-aware sequencing and Roth conversion strategy

With 12–24 months of actual income data, you can be surgical.

  1. Build a withdrawal ladder: taxable → tax-deferred (401(k)/IRA) → Roth. Conserve taxable gains for portfolio flexibility and use tax-deferred assets to fill predictable gaps while executing conversions.
  2. Implement calibrated Roth conversions annually. Convert small amounts that fill up a desired tax bracket (for example, up to the top of 12% or 22% bracket depending on your joint or single filing status and the 2026 tax schedule). This smooths taxes, reduces future RMDs and protects Medicare premiums from later spikes.
  3. Watch IRMAA thresholds and Medicare reporting. Conversions increase MAGI in the year of the conversion and can trigger higher Part B/D premiums 12 months later; factor this into conversion size and timing.
  4. Consider rolling old 401(k)s to an IRA only after evaluating creditor protection and annuity options. Some employer plans still offer in-plan annuities or stronger creditor protection for ERISA plans; rolling to an IRA is often beneficial for Roth conversions but not always mandatory.

Year 4 (Months 37–48): repositioning ahead of RMDs

As RMDs approach, accelerate steps that reduce tax drag.

  1. Accelerate Roth conversions in consistently moderate-income years. The goal is to compress future taxable RMDs into tax-free Roth balance.
  2. Compare pension lump-sum offers against RMD and longevity impacts. Use realistic discount rates and mortality assumptions—request an actuarial report and run the numbers including survivor benefits.
  3. Consider QLACs or partial annuitization to reduce RMDs and secure lifetime income. Under SECURE 2.0 the QLAC cap (lesser of $200,000 indexed or 25% of account) lets some retirees add guaranteed deferred income while postponing part of their RMD base.
  4. Document decisions and maintain conversion and distribution records for tax and legacy clarity.

Year 5 (Months 49–60): start RMD-aware distributions

If RMDs are imminent, use smoothing tactics and continued conversions where efficient.

  1. Anticipate RMD calculations. RMDs use year-end balances and IRS life expectancy factors—plan calendar-year timing of large transfers or distributions to optimize the RMD calculation.
  2. Continue Roth conversions selectively. Even after beginning RMDs, targeted conversions can still reduce future taxable baselines, though the math changes once RMDs start.
  3. Evaluate partial annuitization again. Partial annuitization may reduce volatility and sequence risk; weigh offers (guaranteed payouts, inflation adjustments, survivor options) against longevity assumptions and spouse needs.
  4. Coordinate estate and beneficiary planning with your updated balance sheet. Roth IRAs are often preferred legacy vehicles because distributions to beneficiaries remain tax-free (subject to 10-year payout rules introduced by prior legislation); coordinate beneficiary designations accordingly.

Updated illustrative example (Sept 2026)

Couple: ages 65 and 63 at retirement (Year 0). Accounts: 401(k) $750,000, Traditional IRA $400,000, Roth IRA $60,000, Taxable brokerage $200,000, Pension $1,000/month single-life. Social Security projected at $1,800/month (spouse) and $1,300/month at FRA. Essentials budget: $6,500/month.

  • Year 1: Maintain 18 months of expenses in liquid short-term Treasuries and high-yield savings. Delay Social Security; use taxable brokerage for discretionary and initial essential drawdown.
  • Year 2: Taxable income remains moderate after deductions—convert $30,000 from Traditional IRA to Roth IRA, staying inside a lower marginal bracket and below projected IRMAA triggers. Make estimated tax payments to cover conversion tax to avoid underpayment penalties.
  • Year 3: Continue conversions of $25,000–$40,000 as income windows permit. Roll a former employer Roth 401(k) into a Roth IRA to eliminate future in-plan RMDs if the plan has RMD requirements (confirm with plan).
  • Year 4–5: Use QLAC purchase of $150,000 from a portion of IRA funds to secure deferred lifetime income starting at 85 (reduces later RMD base). Ramp conversions in years where taxable income is still favorable to smooth the RMD spike when distributions start at 73.

This example illustrates staged conversions, use of a QLAC to manage future RMDs, and delaying Social Security to create conversion windows—tailor amounts to your tax brackets, Medicare implications and life expectancy.

Common mistakes and how to avoid them

  • Over-converting in a single year: large conversions can push you into higher brackets and trigger Medicare IRMAA or ACA premium impacts. Convert in measured slices.
  • Claiming Social Security prematurely: making the decision from fear rather than from data can cost tens of thousands over a lifetime. Re-evaluate after 1–3 years of observed income and health status.
  • Neglecting the cash buffer: insufficient liquidity forces distressed withdrawals in down markets. Keep 12–24 months of essential liquidity.
  • Ignoring pension fine print: survivor options, cost-of-living adjustments and buyout terms materially change the lump-sum vs annuity calculation—demand an actuarial statement and run a comparison on an after-tax basis.

Pro tips

  • Coordinate Roth conversions with low-tax events: periods with unusually low income (job gaps, deferred Social Security) are ideal conversion windows.
  • Pay conversion taxes from taxable accounts—not from the converted IRA funds—so more converts compound tax-free in the Roth.
  • Use a separate spreadsheet tab to model Medicare IRMAA impacts for different conversion sizes; even a modest jump in MAGI can increase monthly premiums materially.
  • Consider charitable strategies: if you are charitably inclined and older than the required QCD age, qualified charitable distributions (QCDs) from IRAs can offset RMDs and reduce taxable income—confirm current age rules and limits with your tax professional.
  • Keep clear documentation of Roth conversion rationale and tax payments—this helps with future tax planning and any potential IRS questions.

When to call a professional

Engage a fee-only CFP and a tax CPA if you have multiple 401(k)s, an active defined-benefit pension with a lump-sum option, large brokerage positions with low cost basis, expect business or real-estate sales, or face estate-tax exposure. Professionals will help size conversions, determine rollover timing, project IRMAA/Medicare effects and coordinate Social Security decisions with Medicare and spouse protections.

Decision checklist: what to do this month

  • Run a five-year cash-flow and tax projection with and without Social Security claiming and with staged Roth conversions.
  • Create a spreadsheet showing current balances, targeted annual conversion amounts and projected RMDs starting at your RMD age under SECURE 2.0.
  • Confirm pension and plan paperwork; request an actuarial statement for any lump-sum offer.
  • Set up estimated tax payments or withholding if you plan conversions this year to avoid underpayment penalties and IRMAA surprises.
  • Schedule a meeting with a fee-only financial planner or tax CPA if you have pension choices, large tax-deferred balances, or complex estate goals.

Final checklist: exit points at five years

  1. Recalculate projected RMDs and test how the prior five years of conversions reduced future RMDs.
  2. Finalize Social Security timing based on health, spouse considerations and updated balance projections.
  3. Decide whether additional annuitization or QLAC purchases make sense given longevity preferences and current market annuity pricing.
  4. Update estate documents and beneficiary designations to reflect Roth conversions and new objectives.

Common Questions

How has SECURE Act 2.0 changed RMD rules I should plan for?

SECURE Act 2.0 raised the general RMD start age: it is 73 for most taxpayers as of 2023 and will increase further (to age 75) in 2033. That creates more pre-RMD years to implement Roth conversions, but RMDs will still occur eventually—plan conversions and account allocations with the new start age in mind.

Are Roth conversions still worth it in 2026?

Yes—when done in calibrated amounts. Roth conversions convert taxable future RMDs into tax-free balances. In 2026, conversions still make sense where you can fill lower tax brackets without triggering IRMAA or higher Medicare premiums. Always model the tax cost today vs expected future RMD tax drag and estate planning objectives.

What is a QLAC and should I consider one now?

A Qualified Longevity Annuity Contract (QLAC) is a deferred income annuity funded from an IRA or 401(k) that delays required distributions on the purchased amount. Under SECURE 2.0 the in-plan QLAC cap is the lesser of $200,000 (indexed) or 25% of account value. QLACs can be useful to secure late-life income and reduce the taxable RMD base, but you should compare insurer credit quality, payout options and liquidity trade-offs.

Will rolling a Roth 401(k) to a Roth IRA stop RMDs?

Generally yes: Roth IRAs are not subject to lifetime RMDs, whereas Roth 401(k)s historically were subject to plan-level RMDs. Rolling a Roth 401(k) to a Roth IRA removes that potential RMD obligation—confirm plan rules and discuss timing with your plan administrator and tax advisor.

How do I avoid Medicare premium surprises when converting?

Medicare Part B/D premiums and IRMAA surcharges are based on modified adjusted gross income (MAGI) reported to Medicare from two years prior. Large conversions can therefore increase premiums in later years. Avoid surprises by modeling MAGI sensitivity, staggering conversions across years, making estimated tax payments, and consulting a tax professional about timing.

Note: This guide is informational and not individualized tax advice. Tax rules change; verify current year tax brackets, Medicare/IRMAA thresholds, and plan-specific rules with authoritative sources (IRS, SSA.gov, your plan administrator) and a qualified tax professional before taking action.