What to Do With Your 401k When You Retire in Florida

The last paycheck clears, the going away cake is gone, and then the letters start. Your 401k provider wants to know what you plan to do with your account. So does a bank you have never used, and so does a cousin with strong opinions. Meanwhile that balance may be the largest sum of money you and your spouse have ever had in one place, and the fear of making one expensive mistake with it is completely reasonable.

I am Bradley Stone, an independent agent here in Central Florida. The good news is that you rarely have to decide the day you retire, and the choices are simpler than the paperwork makes them look. Here is the plain version of each option, the tax rules that trip people up, and how Florida treats this money.

Your four basic choices

When you leave an employer, your 401k money can generally go one of four ways, and you can often combine them.

• Leave it in the plan.
• Roll it over to an IRA.
• Cash it out.
• Turn part of it into a steady monthly income.

None of these is right for everyone. The right mix depends on your age, your other income, your health, and how comfortable you are managing money over what could be a 30 year retirement.

Leaving it where it is

You can usually leave your money in a former employer's plan after you retire, and there is nothing wrong with doing that while you think.

Leaving it has real advantages. If you left your job in or after the year you turned 55, you can generally take money out of that employer's 401k without the extra 10 percent early withdrawal tax, even though you are younger than 59 and a half. That is often called the rule of 55, and it only works inside that employer's plan. For certain public safety employees in government plans, the age is 50. Employer plans also carry strong federal protection from creditors.

The drawbacks are about control. Your former employer's plan decides how withdrawals work, and some plans are less flexible than others about partial withdrawals or regular monthly payments. If your balance is small, the plan may be allowed to move you out without asking, and the law now lets plans do that for balances up to $7,000. And if you have old accounts scattered across three former employers, keeping track of them gets harder every year.

Rolling it over to an IRA

A rollover moves your 401k money into an Individual Retirement Account in your own name. Done correctly, it is not a taxable event, and the money stays tax deferred.

People like IRAs because they bring scattered accounts under one roof and usually offer more flexibility in how and when you take money out.

How you move the money matters more than almost anything else in this article.

Direct rollover versus the withholding trap

In a direct rollover, your plan sends the money straight to the IRA custodian. When pretax money goes into a traditional IRA this way, nothing is withheld and nothing is taxed.

In an indirect rollover, the plan cuts the check to you personally. When that happens, the plan is required to withhold 20 percent for federal income tax, and you cannot opt out, even if you fully intend to roll the money over. You then have 60 days to deposit the money into an IRA.

Here is where people get hurt. For illustration, say you have a hypothetical $100,000 balance and ask for a check. The plan withholds $20,000 and sends you 80,000. To avoid tax on the full amount, you must deposit the full $100,000 into an IRA within 60 days, which means coming up with $20,000 from your own savings. If you only deposit the 80,000, the missing 20,000 is treated as a taxable distribution. If you are under 59 and a half, it may also face the 10 percent additional tax. You do get credit for the withheld amount when you file your return, but that can be many months away.

The simple fix is to ask for a direct rollover every time. If you have an outstanding 401k loan when you leave, ask how the plan handles it too. A loan that gets offset because you separated from service can generally be rolled over by your tax filing deadline, including extensions, which gives you more time than the usual 60 days.

The downside of rolling everything over is that the rule of 55 does not follow the money into an IRA. If you are between 55 and 59 and a half and expect to need withdrawals, leaving some or all of it in the plan until you reach 59 and a half may save you real money.

Cashing it out

Cashing out gives you all the money at once, and for most people it is the most expensive choice on the list.

Every pretax dollar you withdraw from a traditional 401k is taxed as ordinary income on your federal return in the year you take it. Take a large balance in one year, and much of it can land in a higher tax bracket than you would ever reach by spreading withdrawals out. The 20 percent the plan withholds may not cover the full bill. And if you are under 59 and a half with no exception, the extra 10 percent applies on top.

A partial withdrawal for a true need can make sense. Cashing out the whole account because the letters are confusing does not.

Turning part of it into income

Many retirees do not want a pile of money. They want a paycheck.

Some employer plans now offer an annuity or lifetime income option inside the plan. Many people roll part of their balance to an IRA and take regular withdrawals they set themselves. Others use part of the IRA to buy an annuity that pays a set income for life, and keep the rest available for flexibility and emergencies. If you want to see how a balance translates into monthly income, I walk through that in how much monthly income your savings will actually produce.

The ages that matter

Age 55 is the rule of 55 described above, for money left in the plan of the employer you just left.

Age 59 and a half is when the 10 percent additional tax on early withdrawals generally stops applying to both 401k plans and IRAs.

Age 73 or 75 is when required minimum distributions begin. Under the SECURE 2.0 law and the IRS final regulations, if you were born from 1951 through 1959, your required minimum distributions start at 73. If you were born in 1960 or later, they start at 75. Your first one can wait until April 1 of the following year, but then you must take two in that same year, which can bump up your taxes.

If you are still working past that age and are not a 5 percent owner of the business, your current employer's plan may let you delay distributions from that plan until you retire. That exception does not apply to IRAs. Roth 401k accounts no longer have required minimum distributions during the owner's lifetime.

Missing a required distribution is costly. The IRS can charge an excise tax of 25 percent of the amount you should have taken, reduced to 10 percent if you correct it in a timely way within two years.

If your 401k holds company stock

If you spent years buying your employer's stock inside the 401k, slow down before you roll anything. Federal tax rules include a special treatment called net unrealized appreciation. When company stock comes out of the plan as part of a qualifying lump sum distribution of your whole balance, you generally pay ordinary income tax only on what the shares originally cost the plan. The growth built up inside the plan is not taxed until you sell, and that growth is then generally taxed as a long term capital gain.

This can mean real savings for some people and be the wrong move for others. Either way, the decision has to be made before the shares leave the plan, so bring a tax professional into it first.

How Florida treats your 401k

Two Florida facts work in your favor.

First, Florida has no personal income tax, a limit written into the state constitution. Your 401k and IRA withdrawals are still taxed on your federal return, but there is no state income tax on top.

Second, Florida law protects retirement money from most creditors. Under Florida Statutes 222.21, money in qualified retirement plans such as 401k plans, along with traditional and Roth IRAs, is generally exempt from creditor claims. There are exceptions, including certain domestic relations orders in a divorce. Separately, Florida Statutes 222.14 protects the cash surrender value of life insurance policies and the proceeds of annuity contracts issued to Florida residents from most creditors. For people who worry about a lawsuit or a business debt, rolling from a 401k to an IRA generally does not give up protection under Florida law.

Where an annuity inside an IRA fits, and where it does not

Annuities are one of my products, so you deserve to know where I sit. If you roll part of your 401k into an annuity through me, I may be compensated. If you leave your money in the plan or roll it into an IRA without an annuity, I am not. I would rather tell you that plainly than have you wonder, and I will lay out both paths in writing, including the one that pays me nothing, before you sign anything.

An annuity held inside an IRA gets no extra tax benefit. The IRA is already tax deferred. The federal Securities and Exchange Commission makes the same point for variable annuities. So the only good reason to put part of your IRA in an annuity is what the contract does, not the tax treatment. That usually means turning a portion of your savings into income you cannot outlive, or protecting a portion from market losses. Those guarantees depend on the claims paying ability of the insurance company that issues the contract.

There is one IRA specific tool worth knowing about. A qualifying longevity annuity contract lets you place part of your IRA into an annuity that starts paying later, by age 85 at the latest. For 2026, the IRS limit on premiums for these contracts is $210,000, and before payments begin, that amount is left out of the balance used to figure your required minimum distributions.

An annuity inside an IRA is usually the wrong answer when:

• You may need the money within the surrender period. Surrender charges are real.
• It would tie up most or all of your savings, leaving no cushion for emergencies.
• Social Security and a pension already cover your essential bills.
• You are in poor health and unlikely to collect lifetime income for long.
• The main selling point you heard was tax deferral.

It can make sense when you want a portion of your essential expenses covered by income that does not depend on the market, and you still keep enough outside the contract to handle life. I explain the types in annuities explained, and if you want to see where your own income gap is, the calculator on my annuities page is a good place to start.

When a rollover is the wrong answer

Rolling over is popular, but it is not automatic. It may be the wrong call if you retired between 55 and 59 and a half and need to draw on the money, if you hold company stock that could qualify for special tax treatment, or if your former plan offers features you value and cannot get elsewhere. It is also wrong when the real reason is that someone wants to sell you a product with the money. A good agent should be able to explain what you gain by moving it, in plain words, before anything is signed.

Questions worth asking before you move anything

• Can I leave my money in the plan, and what are its rules for partial and monthly withdrawals?
• Will this be a direct rollover, with the check made out to the new custodian and not to me?
• Do I have an outstanding plan loan, and how will it be handled?
• Is any of my balance in company stock, and should that be reviewed first?
• How much of my balance is pretax and how much is Roth?
• What year do my required minimum distributions begin?
• If part of this goes into an annuity, how long is the surrender period, and what can I access in an emergency?

If you also have a pension decision waiting, my guide on choosing a pension or a lump sum covers that side.

Let us talk it through

You do not need to decide this alone, and you do not need to decide it this week. I am happy to sit down, look at your statements, and walk through your choices. Because I am independent and work with a wide range of top rated carriers, I can compare contracts side by side, and I will tell you plainly if leaving your money right where it is makes more sense. Call 407.878.8277 or request a free quote.

This article is general education, not tax, legal, or investment advice. Your own situation deserves a personal review.