Changing Jobs? There Are Few Things To Consider.
Recent employment data has shown that it is becoming increasingly harder for firms to find qualified applicants. In the fourth quarter of 2016, there were more job postings than hires as the chart below clearly indicates. As a result, companies have begun investing in training, wage inflation has surfaced and employees quitting under their own accord (to find better paying employment) has picked up considerably.
Source: Fred.stlouisfed.org through November 2016
If you are thinking about moving on to a better job, there are a few major financial items that you need to take care of to ensure a smooth transition for you and your loved ones.
Retirement Plans
When you change jobs it’s important to make sure you do not forget about the benefits that were provided at your old job. First and foremost is your 401(k). Changing jobs provides the opportunity to rollover your 401(k) to an IRA where you will 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), you will want to check with your plan administrator to see if you have contributed any after-tax assets to your account. If so, you will 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 (upon contribution and withdrawal).
When you arrive at your new company, you will want to ensure you 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 are saving for retirement, and increase that amount if cash flow allows.
If you are over Required Minimum Distribution (RMD) age (70 ½) and continuing to work, you are likely better off rolling your 401(k) assets to your new 401(k) plan. Doing so will allow you to avoid taking RMD’s until April 1stin the year after you retire, thus avoiding the additional income tax due on your RMD’s above and beyond the wages you are continuing to earn.
Finally, you should ensure that you are providing 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 those stock options that are unvested will be lost, and those that are fully vested are available to you, but the window to exercise might be just 90 days. It’s critical to speak with Human Resources as well as your 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 Human Resources contact can be a great resource to explain your out of pocket costs and deductibles, many companies now offer evaluation tools where you can input your claims history and healthcare needs and the software provides a recommendation on your best choice in moving forward.
If you have a gap in coverage between employers, make sure you understand the COBRA coverage that is provided for you. You have 60 days from your termination to elect COBRA coverage and while not the cheapest option, it ensures your family will have no interruption in the coverage they are accustomed to.
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
Most companies typically offer some sort of disability and/or life insurance coverage to their workers. While we find these plans generally do not offer adequate protection by themselves, it is important to understand what you may be giving up or getting by changing jobs. For instance, if your previous employer provided a life insurance benefit of 5 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 are experiencing a large pay raise), you might observe significant changes to your tax situation. These changes might place you in a higher or lower tax bracket and you should ensure your Wealth Advisor and tax advisor are on the same page so you do not end up with any nasty surprises the following April.
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