Financial Considerations When Changing Jobs

Whether it’s a planned job change or a sudden job loss, planning ahead can save you from heading into a financial disaster. Changing jobs or your entire career is an exciting, and possibly frightening journey. During this transition, it can be easy to overlook some basic financial issues that can end up costing you.

Planning Ahead

Even if you aren’t actively seeking new employment, it pays to stay on top of your resume and skills. If you’ve been working in the same field for a number of years, it may be difficult to go back and think of accomplishments or other things you’ve learned. So, if you regularly maintain and update your resume, certifications, and contact list, you’ll be prepared to quickly take that first step in seeking out a new job when the time comes.
You’ll also want to take advantage of your benefits if you currently have them through your employer. For example, if you currently have vision coverage, but think that your next job might not offer it, or it might cost too much, consider getting your annual eye exam, glasses, or contacts before you leave and are no longer on the plan. Thinking ahead with opportunities and benefits currently available to you will help make sure you’re not stuck after changing jobs.

Check if You’re Vested

If you’re fortunate enough to have a pension plan at your existing job, now’s a good time to double check the vesting schedule. Are you vested? If not, how much longer do you need to work to become vested? If you are, how much will your benefit be? The last thing you want to do is find out that you left your job with only a few months until you became fully vested. That could cost you tens of thousands of dollars in retirement benefits.
This goes for 401(k) or other retirement plans that have a company match. Most employers have a vesting schedule tied to the match, and it would be a shame to leave just prior to becoming fully vested. So, take the time to double check the vesting schedules and make sure you won’t be giving up unnecessary money.

Consider a Rollover of Retirement Assets

Once you leave an employer, retirement accounts such as a 401(k) are generally available to you. One of the best things you can do is a 401k rollover. As long as you remain invested in your employer’s plan, you’re bound by their plan terms and whatever investments they choose to use. When you move to an IRA, you have much more flexibility.
In addition, you’ll want to check if there are any restrictions or time limits on your funds. In some plans, if your vested balance is under a certain amount, they will automatically issue a lump sum payment if you don’t roll it over within a certain amount of time. If this happens, they will withhold 20% for taxes and 10% for an early withdrawal penalty if you’re under age 59 1/2.
The biggest reason to roll over your retirement account is that you can continue delaying taxes. One of the biggest mistakes people make is to unnecessarily cash out their 401(k) when they leave their job. This creates a significant tax burden, and really sets your retirement savings back.

Keep a Savings Cushion

Even when you’re planning for a job change, having a safety net of cash set aside to help through the transition is a good idea since there can still be a few weeks where you may not receive a pay check. The last thing you want to do is to find yourself unprepared and have to rely on high interest credit cards to get you through the transition.
Start by creating an emergency fund as soon as possible. It’s always good to have an emergency fund, but making sure you’re prepared during a job transition is when it’s especially important. You should focus on keeping this savings in something relatively liquid such as a savings account or money market so that it’s easily accessible if you need it.

Prepare for Uncle Sam

If a new job means more money, that also means shelling out more money to Uncle Sam. You should check to see if your new income will result in reaching a higher tax bracket, and plan ahead by making early tax deductions to minimize the impact.
And don’t forget, searching for a new job and moving expenses related to the job change may be tax-deductible. So, make sure you’re keeping track of your expenses so you can make the most of any possible deductions.