Kurt Wunderlich, CFA, CFP®, 1/29/2020
Congratulations! You landed a new job. Whether you’ll be stepping into a similar role just at another company or embarking on a completely new career, understanding some beyond-the-salary financial implications of your new gig can make the switch a lot easier.
From keeping track of the savings in your old work retirement plan to understanding your new health insurance options, there are a lot of moving parts when it comes to changing jobs or career. Begin by reviewing your job offer or compensation and benefits package, then use the following information to help guide you around the big financial rocks you often encounter in such transitions.
The world is filled with forgotten or unclaimed retirement plan accounts. Seriously, just littered. When leaving a company, you have four options to deal with your 401(k) balance. You can roll it over into your new work retirement plan, roll it over into an individual retirement account (IRA), keep it in your former employer’s plan, or cash it out. The first three options allow you to keep your money invested for your future and to avoid incurring taxes and penalties. While it may feel great to have a chunk of cash hit your bank account, withdrawing the money will result in paying taxes and a 10% penalty on funds taken out before age 59½, and you leave your future self with less money.
Factors to consider when choosing which of the first three options to pursue include the quality of the investment choices available to you, costs and fees, and how the rules associated with various account types jive with your financial situation.
Next, enroll in your new retirement plan as soon as you are eligible. Continue your contributions as before or, if you now receive a larger salary, work to increase your contributions, a handy way to avoid lifestyle creep. If you can’t join the plan right away, utilize an IRA or taxable account in the meantime to keep your savings on track.
Talk with your new employer about their health care insurance benefits. When are you eligible? What is the cost? What type of plan is it? How do coverage options match up with your expected health care needs?
If there is a gap between when you start your new position and when you begin receiving health care coverage, stay on your previous employer’s insurance through the COBRA continuation program. It’ll likely cost you more than when you were an employee, but going without health insurance is a risk that can have severe financial consequences should you get sick or injured.
Your former employer may have offered you disability or life insurance. These will stop upon termination of employment. Review your new options, and work with your wealth advisor to determine if additional coverage is needed or desired.
Health Savings Account (HSA) and Flexible Spending Account (FSA)
If you have an HSA at your previous job, talk with HR about rolling it into a new account. This can save you money, as your previous employer usually does not cover any HSA fees once you depart. For your FSA, submit all eligible expenses before leaving the company. If there is money left in your account, you can transfer up to $500 into your new FSA.
Changing jobs is typically considered a life event, which can allow you to switch to a spouse’s plan if it is lower cost than your new employer’s plan. Also review your health care costs to get a handle on how much you spend each year. If you typically have low health care expenses, switching to a high-deductible plan and saving in an HSA could allow you to have more money in the future, when expenses are typically higher.
This can range from a cash bonus to discounted employer stock to deferred compensation to a share of company profits. Review your vesting and payout schedules to understand what you are giving up if you leave the job. It is also pertinent to know any tax ramifications and if there is a payout period. When you know how switching jobs will affect this aspect of your pay, add it to your compensation discussion with your new employer.
Changing jobs can feel like juggling chainsaws; it’s exciting, but also dangerous if you miss. While your move may not be 100% financially driven, taking full advantage of the financial opportunities available and not leaving money on the table is still an important part of managing any career.
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