Which side of December 31 your last 401(k) check lands on

Quick answer: Money you take from a 401(k) counts as income in the year it's paid to you. So before you leave your job or cash anything out, check three dates: your birthday, your last day of work, and December 31. Then talk to a CPA before you move a dollar.

This is general education, not individual financial, tax or legal advice. Limits, ages and thresholds change. Confirm the current ones at IRS.gov, SSA.gov and Medicare.gov.

The calendar doesn't care what you meant

Say you retire in late November and decide to pull a chunk out of the 401(k) before the holidays. Feels tidy. Year-end, clean slate.

It's also the easiest way to stack income on top of income.

A traditional 401(k) withdrawal is taxed as ordinary income in the year you receive it. If you earned eleven months of wages that year, the withdrawal lands on top of them. If you wait until the first week of January, you may have no wages at all in that year, and the same withdrawal fills the lower tax brackets instead of piling into the higher ones.

A worked example, not a prediction. Dan retires December 1 after earning $90,000 in wages that year. He takes $50,000 from his 401(k) in December. His taxable income for the year is roughly $140,000 before deductions. Had he taken the same $50,000 on January 3 and had no other income, it would have been taxed at the lower rates available to a $50,000 year. The money is identical. The tax bill isn't. Your actual numbers will differ, and that's why you run them with a CPA first.

Waiting isn't always right. Maybe you need the cash for a December expense. Maybe your income next year will be higher for some reason you can see coming. The point is that you should choose the year on purpose.

The birthday trap: leaving at 54 versus 55

Withdrawals before age 59½ generally carry a 10 percent additional tax on top of regular income tax, with exceptions. One of the best known is the "rule of 55." If you leave your employer in or after the calendar year you turn 55, you can generally take money from that employer's plan without the 10 percent penalty. (Some public safety employees get an earlier age. Check the details at IRS.gov.)

Read that again, because the calendar matters. It's the year you turn 55 and the year you separate from service.

Turn 55 in February 2027 and leave the job in December 2026? You may have just missed it by two months. Leave in January 2027 and you may qualify. A December last day can cost real money.

Two catches people learn the hard way:

• It applies to the plan of the employer you just left. It doesn't apply to your IRA.
• If you roll that 401(k) into an IRA and then need money at 56, the rule doesn't follow it. You may have turned penalty-free money into penalized money with one form.

Not every plan allows partial withdrawals, either. Ask your plan administrator what yours permits before you build a budget around it.

The echo: what this year's income does in two years

This is the part nobody mentions at the retirement party.

Medicare premiums. Higher earners pay surcharges on Medicare Part B and Part D, called IRMAA. The Social Security Administration generally looks at your tax return from two years earlier to set them. A big December withdrawal this year can show up in your premiums when you're 65 or older two years from now. If you're 63 or 64, pay attention. If you're 58, it likely won't matter. Check the current brackets at Medicare.gov and SSA.gov, and know that you can appeal if your income dropped because you retired. That's a real, recognized reason.

Health insurance before 65. If you'll buy coverage on the marketplace, any subsidy depends on your income for the year. A large lump sum can shrink or erase it. The subsidy rules have changed in recent years and may again, so check HealthCare.gov for the current ones.

Social Security taxes. Your 401(k) withdrawals count toward the income used to decide how much of your Social Security benefit is taxable. Pull out more in one year and a bigger slice of your benefit may be taxed that year.

None of this means "withdraw as little as possible." It means a lumpy year costs more than a smooth one, and December is where lumps get made.

Never let the check come to you

If you're leaving the account entirely, there are two ways out.

Direct rollover. The plan sends the money straight to an IRA or your new employer's plan. No tax is due. Nothing is withheld.

Cash it out to yourself. The plan generally has to withhold 20 percent for federal taxes. On $200,000, that's $40,000 gone before you see it. If you meant to roll it over and you do it within 60 days, you'd have to replace that $40,000 from your own pocket to avoid tax on it. Plenty of people can't.

And the withholding isn't your final tax. It's a deposit. You could owe more or get some back, depending on the rest of your year.

So if you're not spending the money, move it plan to plan or plan to IRA. Don't touch it in between.

The small things that decide the big thing

A few quieter items belong on the same list, mostly because they live at year-end.

• Vesting and match dates. Some employers vest their match on an anniversary. Leaving a few weeks early can forfeit real money. Look up your plan's schedule before you set a last day.
• Year-end bonuses and deferred pay. Ask HR whether payouts fall in this year or next. You may have more say than you think.
• Company stock. If your 401(k) holds employer stock, special tax treatment may apply to a distribution. It's complicated and easy to blow. This is a CPA question.
• Moving states. If you're relocating to a state with lower or no income tax, the year you take the money and your date of residency may both matter, and states handle this differently. Our piece on what to check before you retire to a small town covers the rest of the move.
• Beneficiaries. A new rollover IRA needs a new beneficiary form. Without one, your plans may not go where you think. Your will doesn't control most of your money, and this is exactly why.

Before you sign anything

Work out which account you'll spend from first. The order matters as much as the date, and we cover it in which retirement account to spend from first.

Then sit down with a fee-only fiduciary adviser or a CPA, in October if you can, not on December 29. Bring last year's return, your year-to-date pay stub and your plan's withdrawal rules. Ask them to compare two versions of your next twelve months: money out in December, money out in January. A good one can show you both on a single page.

Retirement doesn't have a deadline on the calendar. But your taxes do, and they'll be tallying everything you did by midnight on the 31st.

The account will still be there on January 2. Most of the time, that's the whole point.