Updated for 2026 IRS limits.
You’ve set the date. Next year, you’re done. After 30-plus years of early meetings and rush-hour traffic, you’re about to own your Mondays.
Before you clean out your desk, there’s one more project that deserves your attention: tax planning before retirement. Not next April’s return, but the decisions you make before December 31.
Your last year of work is probably your highest-income year ever: a full salary, a bonus, maybe stock vesting on top. Your first few years of retirement may be your lowest, after the paycheck stops but before Social Security and required minimum distributions (RMDs) begin. That gap between a tax peak and a tax valley is one of the best planning opportunities you’ll ever get.
The short answer: Tax planning before retirement comes down to timing. In your last year of work, push deductions into this year and income into the low-income years that follow. Max out your 401(k) and HSA, time your bonus and deferred compensation, bunch charitable gifts, and save Roth conversions for after the paycheck stops.
1. Max out your workplace accounts
Every dollar you put into a pre-tax account this year avoids your highest tax rate. That makes your final year the most valuable year to max out.
How much can I put in my 401(k) in 2026?
For 401(k), 403(b) and most 457 plans (IRS):
- Standard limit: $24,500
- Age 50–59 or 64+: an extra $8,000 catch-up, for $32,500 total
- Ages 60–63: an $11,250 “super catch-up” instead, for $35,750 total
If you’re retiring partway through the year, raise your contribution rate now so your last few paychecks get you there.
Does the new Roth catch-up rule apply to me?
If your 2025 wages from your employer topped $150,000, your 2026 catch-up contributions must go in as Roth (after-tax). That won’t cut this year’s tax bill, but the money grows and comes out tax-free. Make sure your plan offers a Roth option.
Don’t leave the match on the table
Some plans pay a year-end “true-up” match only if you’re still employed on December 31. Know your plan’s rule before you pick a last day.
Max out your HSA
With a high-deductible health plan, you can contribute up to $4,400 (self-only) or $8,750 (family), plus $1,000 if you’re 55 or older. An HSA offers a rare triple tax break: contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. If you lose high-deductible coverage partway through the year, your limit is generally prorated.
While you still have your employer’s health plan, spend down any FSA balance and schedule elective medical or dental work.
2. Time your income
When money hits your account matters almost as much as how much.
Pick your last day around money you’ve already earned
List your bonus payout date, RSU vesting dates, the 401(k) true-up and any pension milestones, then compare them with the calendar. If your employer allows it, ask whether a bonus or severance payment can land in January instead of December. Retiring mid-year also splits your salary across two tax years, which can make next year a lower-income year.
Check your deferred compensation election now
If you have a nonqualified deferred comp plan, the payout election you made years ago decides when that money gets taxed. A lump sum when you leave can stack hundreds of thousands of dollars on top of your final salary. Installments can spread it into lower-income years. Changes are tightly restricted: under Section 409A, a change generally has to be made at least 12 months ahead and has to push the first payment back at least five years. If you’re retiring in the next year or two, look at this first.
Plan for the PTO payout
Many employers cash out unused vacation when you leave, on top of your regular pay. Use the time before you go, or ask whether your plan allows 401(k) contributions from that final check.
Make a plan for company stock
Map out RSU vesting and option exercise deadlines. If your 401(k) holds your employer’s stock, look at net unrealized appreciation (NUA) before you roll anything over. Handled correctly, it can turn some of that growth into lower-taxed capital gains.
3. Set up “year one” of retirement
When should I do Roth conversions?
Usually not this year. Converting now means paying tax at your peak rate. In the gap years, after your paycheck stops but before Social Security and RMDs begin, you may be able to convert at much lower rates. Just watch your health insurance: conversions count as income for ACA Marketplace subsidies. (More on that here.)
Bunch your charitable giving
If you give regularly, consider putting several years’ worth into a donor-advised fund (DAF) this year. You get the deduction against your highest-taxed income, then grant the money out over time. Giving appreciated stock instead of cash can also avoid capital gains tax. New for 2026: itemized charitable gifts count only above 0.5% of your adjusted gross income (AGI), and if you’re in the top 37% bracket, the tax benefit is capped at 35%.
Harvest losses now, gains later
Selling investments at a loss can offset this year’s gains plus up to $3,000 of ordinary income, and unused losses carry forward (IRS). Save gain harvesting for the gap years, when your income may be low enough for the 0% long-term capital gains rate.
Plan next year’s taxes before the paychecks stop
Once withholding ends, you’ll likely need quarterly estimated payments. To avoid an underpayment penalty, plan to pay at least 100% of this year’s tax next year, or 110% if your AGI is over $150,000 (IRS). Bonuses and RSUs are often under-withheld, so check this year’s withholding too.
Don’t rush the 401(k) rollover
If you leave your job in or after the year you turn 55, the Rule of 55 may let you withdraw from that employer’s plan without the 10% penalty. Rolling the money into an IRA ends that option. (Here’s how the Rule of 55 works.)
A worked example: Mark and Karen
Mark and Karen are a hypothetical couple, not actual clients. Figures are rounded and federal tax only, and assume the 24% federal bracket this year, no state taxes, and that they itemize.
Mark, 61, is a VP at a large company in Maryland. His wife, Karen, 59, left her job last year. Mark earns $280,000 plus a $70,000 bonus paid every March. They’ve saved $2.6 million, including $300,000 in Mark’s deferred compensation plan. His plan: collect the March 2027 bonus, then own his Mondays.
This year, they’re in the 24% federal bracket. Starting in 2028, with no salary coming in, they may drop as low as the 10–12% brackets for several years. That gap is the opportunity.
| Move | What Mark and Karen do | Rough federal tax effect |
|---|---|---|
| Max out the 401(k) | $24,500 pre-tax, plus the $11,250 super catch-up (as Roth, since his 2025 wages topped $150,000) | About $5,900 less tax this year |
| Max out the HSA | $8,750 family, plus Mark’s $1,000 catch-up | About $2,300 less tax this year |
| Bunch charitable giving | Put three years of giving ($30,000) into a donor-advised fund now, instead of $10,000 a year in retirement | About $6,800 less tax this year; in retirement, they’d likely take the standard deduction and save little or nothing |
| Skip the Roth conversion (for now) | Wait for the gap years to convert | About $12,000 less tax per $100,000 converted, if their conversions are taxed at 12% instead of 24% |
| Check the deferred comp election | His plan pays a lump sum when he leaves, stacking $300,000 on top of his final salary and bonus | Changes generally take at least 12 months to take effect, so this comes first |
| Time the last day | Stay through the March bonus and spring RSU vesting | Keeps $70,000 he’s already earned |
The result: about $15,000 less federal tax this year, before counting the savings from Roth conversions later.
One catch: a big Roth conversion in 2028 could push their income past the $86,560 ACA subsidy cutoff for married couples. The right conversion amount depends on how they’ll cover health care until Medicare.
5 decisions new retirees wish they could undo
- Letting a deferred comp lump sum land in their highest-income year. By the time they noticed, it was too late to change the election.
- Rolling the 401(k) into an IRA at 56, and losing penalty-free access under the Rule of 55.
- Doing a big Roth conversion in their last paycheck year instead of waiting for the lower-tax gap years.
- Picking a last day that forfeited money they’d already earned: a bonus, an RSU vest or the 401(k) true-up.
- Getting hit with an underpayment penalty because no one set up estimated taxes after withholding stopped.
Tax planning before retirement: FAQs
Usually not. Your final working year is often your highest tax bracket. The years after your paycheck stops, but before Social Security and RMDs begin, are often a better window, as long as you watch the ACA subsidy limits.
Not from new wages once you’ve stopped working. That’s why it pays to raise your contribution rate now, so your final paychecks reach the 2026 limit.
Your deferred compensation payout election, if you have one. Changes generally take at least 12 months to take effect, so it can’t wait until your last month.
Your last year of work is your first retirement move
Your final year isn’t just the end of a long career. It’s the first move in your retirement plan, and some of these decisions are hard to undo.
I’m living a version of this myself. I left my W-2 job this spring to start Own Your Monday, so 2026 is my family’s split year too.
At Own Your Monday Wealth Management, I help professionals 55 and older map out their final year of work and the gap years that follow.
You’ve earned your Mondays back. Are you ready to Own Your Monday?
Schedule a conversation and let’s build your transition plan before December 31.
Own Your Monday Wealth Management is an investment adviser registered with the Maryland Securities Division. Registration is not an endorsement by securities regulators and does not imply a certain level of skill or training. Advisory services are offered only to clients or prospective clients where the firm is properly registered or exempt from registration. This content is for educational and informational purposes only and is not personalized investment, tax, or legal advice. Information is believed to be accurate as of the date published but is not guaranteed. No strategy can guarantee a particular outcome, and all investments involve risk, including possible loss. Reading this post does not create an advisory relationship. The example above is hypothetical and for illustration only. Contribution limits, tax brackets and other rules change, and deferred compensation, equity and retirement plan rules vary by plan document. Consult a qualified tax professional before acting. Additional information about the firm is available in our Form ADV Part 2A and at adviserinfo.sec.gov.