Starting a New Job? 6 Financial Items to Consider
Congratulations on getting that new job! As you look forward to the opportunities that come with a new position, you may also want to take into consideration some financial items that tend to come with any job change, particularly if you’re moving to a new employer and/or different state. From our experience, careful thought on these matters is important because the decisions you make could impact your finances. With that in mind, we have provided the following checklist to help with your transition.
1. Employer-provided health benefits
a. Compare the cost and coverage for health care before committing to changing jobs.
b. To avoid gaps in coverage, consider the Consolidated Omnibus Budget Reconciliation Act (COBRA) and confirm whether your current health care providers will be in the network at your new job.
c. If you have a Flexible Savings Account (FSA), consider spending all of the funds before leaving your job, as this money will not go with you to your new job. Each FSA has its own annual limit that is set by the employer.
d. A Health Savings Account (HSA) is portable and does not need to be spent before leaving your former job.
2. Employer-provided retirement benefits
a. Consider the advantages/disadvantages of a direct rollover of your existing 401(k) to either your new employer or an IRA rollover account at a broker-dealer.
b. If your cash flow allows, find every way possible to contribute a 401(k) amount that will maximize the employer matching percentage. Why not take advantage of free money if it’s available to you?
i. Consult with a tax advisor and/or financial planning professional about whether to contribute to a Roth IRA or a traditional 401(k).
c. If you have stock options, before leaving your current employer, understand the vesting schedule of these options and decide whether you’re willing to leave unvested options behind. If you have vested stock options, understand whether you must exercise the options before you depart or you have a window to exercise them after you leave.
d. If you have a deferred compensation plan, understand the distribution options (e.g., lump sum, annual) before you leave your current job.e. If you own (or will own) stock in a private company, consider the impact of illiquidity and any repurchase rights.
3. Tax issues
a. If your moving expenses are reimbursed by your employer, then the expenses are not eligible for a federal tax deduction (except in some situations for active-duty military personnel).
b. Keep records of unreimbursed expenses related to any move and consult with a tax professional to determine deductibility.
c. Review state and federal withholding numbers and any estimated tax payments. If your salary has changed significantly, consider making adjustments to your Form W-4 withholding election.
4. Cash flow issues
a. Are there significant near-term costs related to the job move that need funding and liquidity?
b. Longer term, how will your cash flow be affected by changes in tax, cost of living and compensation? Think about changes in salary, bonus and stock option exercises and the tax impact of all these variables.
5. Considerations if moving out of state
i. If you’ll be keeping homes in multiple states, you need to consider which home will be deemed your primary residence (i.e., where you live most of the time) and how a “change in domicile” may impact your state income taxes. Keep detailed, accurate records of the time you spend in your claimed state of domicile.
ii. If you own property in multiple states, your estate plan should be reviewed to avoid needless costs related to probate in multiple states if you were to die. It may be valuable to consider a revocable trust addition or change. Also review other documents in your estate plan, such as wills, medical powers of attorney, living wills, etc., to ensure the documents are updated for your intentions and compliant with the laws in your primary state of residence.
b. Education funding: consider how funding a 529 plan may impact your ability to use state income tax deductions and/or K–12 education reimbursements.
c. If you have a trust, determine which state laws apply to the trust and see if any changes need to be made.
d. Legal: identify any changes in your new state of residence related to property rights, creditor protection and community property.
e. If you are selling your primary residence, determine whether your gains will be within the parameters to avoid capital gains or plan for liquidity to pay the additional taxes if the sale is subject to capital gains.
f. Health care
i. If you move to a neighboring state but keep your same medical professionals, this could result in a challenge to your state of domicile.
ii. Get referrals from trusted sources to health professionals in your new state, where applicable.
iii. For Medicare: Determine whether you’re covered in the new area where you’ll live and what options are available before you move to make sure there’s no break in coverage. A move triggers an open enrollment period for Part D coverage and Advantage, allowing you to make changes.
g. Note that some higher-tax states may look closely at when you have moved to a state with lower taxes in order to challenge your domicile status.
a. Remember to notify the U.S. Postal Service, IRS, financial institutions you do business with and Social Security Administration about your move.
b. Update your driver’s license and vehicle registration, and register to vote in your new home state.
c. Update your insurance policies and perform an audit of your property and casualty insurance to determine if the existing coverage remains adequate for your new circumstances.
This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.
Our clients must, in writing, advise us of personal, financial, or investment objective changes and any restrictions desired on our services so that we may re-evaluate any previous recommendations and adjust our advisory services as needed. For current clients, please advise us immediately if you are not receiving monthly account statements from your custodian. We encourage you to compare your custodial statements to any information we provide to you.