Changing Jobs: A Few Things to Consider

Changing jobs can be an exciting but hectic time. As you take on new challenges, acquaint yourself with new coworkers and settle into a new environment and routine, there are a few major financial items you should address to ensure a smooth transition for you and your loved ones.

Retirement plans

When you change jobs, don’t forget about the benefits that were provided at your old job. First and foremost is your 401(k). Changing jobs provides the opportunity to roll over your 401(k) to an individual retirement account (IRA), where you’ll have a wider range of investment options and can continue to invest the assets in a tax-deferred manner.

Before rolling over your 401(k), check with your plan administrator to see if you’ve contributed any after-tax assets to your account. If so, you’ll likely want to roll these assets to a Roth IRA to ensure they continue to be treated on an after-tax basis. Rolling the assets to an IRA without identifying the after-tax assets means you may end up paying taxes twice on those assets (at contribution and withdrawal).

When you arrive at your new company, strive to enroll in the new plan as soon as possible to take full advantage of an employer match, if one is provided. In addition, enrollment in the new plan is a good time to review how much you’re saving for retirement and potentially increase that amount if cash flow allows.

If you are over the required minimum distribution (RMD) age of 70½ and are continuing to work, you’re likely better off rolling your 401(k) assets to your new 401(k) plan. Doing so will allow you to defer taking RMDs until April 1 in the year after you retire, thus avoiding the additional income tax due on your RMDs above and beyond the wages you’re continuing to earn.

Finally, remember to designate the primary and contingent beneficiaries on your retirement plans. If you are married, federal law states your spouse will be the beneficiary. If you would like assets to go to someone other than your spouse, your spouse is required to sign a waiver approving the designation.

Stock options

Aside from any retirement savings plans you may be invested in, you also might have stock options from your previous firm. When leaving a company, generally the stock options that haven’t yet vested will be lost, and those that have fully vested are available to you, but the window to exercise your option might be just 90 days. It’s critical to speak with human resources (HR) as well as your Corient Wealth Advisor to understand your company’s rules, and to determine what action needs to be taken.

Health benefits and savings plans

Choosing a new health plan affects your entire family. While your new HR contact can be a great resource to explain your out-of-pocket costs and deductibles, many companies now offer evaluation tools where you may input your claims history and healthcare needs, and then the software will provide a recommendation on your best choice when moving forward.

If you have a gap in benefits coverage between employers, make sure you understand the COBRA coverage that’s provided for you. You have 60 days from your termination at your previous employer to elect COBRA coverage. While not the cheapest option, COBRA ensures your family will have no interruption in the coverage they’re accustomed to and may require.

It’s also important to understand if a flexible spending account or health savings account (or maybe both) might be available to you. These plans provide tax-advantaged ways to save and pay for healthcare costs, and could prove useful if your new salary has bumped you into a higher tax bracket.

Insurance

Typically, most companies offer some sort of disability and/or life insurance coverage to their workers. While we find these plans generally don’t offer adequate protection by themselves, it’s important to understand what you may be giving up or gaining when changing jobs. For instance, if your previous employer provided a life insurance benefit of five times your salary but your new employer only provides one year’s salary, you may want to add a private policy to make up the difference.

Also remember to designate appropriate beneficiaries for your life insurance policy.

Moving out of state

Finally, if your new job is taking you out of state (or you’re experiencing a large pay raise), you might notice significant changes to your tax situation. These changes could place you in a higher or lower tax bracket. Be sure that your Corient Wealth Advisor and tax advisor are on the same page, so you don’t end up with any unwelcome tax surprises the following April.

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