A 401(k) is a company-sponsored plan that allows you to put away part of your income for retirement. These are offered by your employer and may include company matching. However, when you leave a company and begin working elsewhere, there can be a lot of confusion surrounding how to handle your retirement funds. While a 401(k) rollover is the most preferred course of action, it's not the only one. Consider the three different options below. 

3 Ways to Handle an Old 401(k)

1. Keep It With Your Former Employer

Some people have the option of keeping their 401(k) with their former employer even after leaving the company. There are a few benefits to this, but you won't be able to make any further contributions to that plan. The money in there will continue to grow tax-deferred, but if it's less than $5,000 it may be automatically sent to you anyway. If you have larger sums of money and want to continue contributing to retirement—and earning higher interest rates—keeping it with a former employer isn't recommended. 

2. Undergo a 401(k) Rollover

The best option for old retirement plans is making a 401(k) rollover. This allows you to move money from your previous employer-sponsored plan into an IRA account. This allows your money to continue to grow, while you can still contribute to its total sum.

You can also withdraw money before the age of 59 1/2 penalty-free, under certain circumstances (e.g., first-time homebuyer). Since IRA plans have several options to build your investment portfolio, a 401(k) rollover will also help you diversify your assets. 

3. Schedule a Withdrawal

Although this is always an option, taking money out of your 401(k) should be avoided at all costs. Taking out cash before the age of 59 1/2 can result in an early withdrawal penalty of up to 10%. This is on top of income taxes. Unless it's an absolute emergency and you have no other options available, cashing out should not even be considered. If you do need to take money out before age 59 1/2, try to only take out what you need and nothing more to avoid unnecessary penalties. You can also look at taking out a personal loan as an alternative. 

Planning for retirement should begin as early as possible. If you haven't started, the best time to do so is now. To help you with all of your retirement planning needs, turn to the financial experts at Scarecrow Advisors in Savage, MN. These family-owned and -operated investment service partners help their clients improve financial stability and build strong investment portfolios. From handling your 401(k) rollover to providing advice on money management, their team has the expertise necessary to help you achieve your goals. To learn more about their services, visit their website or call (952) 250-7463 to speak with a financial advisor today.