“Dreams are the seeds of change. Nothing ever grows without a seed, and nothing ever changes without a dream.”
– Debby Boone
It is time to move on.
You’re leaving your old job and embarking on a new, exciting chapter of your career. Hopefully you’re excited, maybe a little apprehensive, but feel good about your future!
As you navigate the intricacies of a new office, new relationships and a new commute, one thing that might not be on your mind is all of the little financial steps needed to pivot from one employer to another.
Here are the 5 financial things to take care of when you change jobs:
1. Make sure you continue your health insurance coverage.
Most people—around 56% of the population—get their health insurance coverage through work.
Walking through open enrollment can be intimidating, but once you learn the basics it isn’t so hard. The most important thing is not to put off getting coverage.
This can also be a good time to analyze different types of coverage. You might consider moving to a high deductible plan if you are the type that does not visit your doctor that often.
A Health Care Savings Account (HSA) can be a great thing to combine with a high deductible plan. A HSA is a tax deductible account that can be used tax free for qualified uninsured medical expenses. If you don’t yet have one take a look at it when you sign up for your new benefits.
If you plan on having a gap between jobs, make sure you continue coverage by coordinating with the company you are leaving. In most cases you should have the option to continue coverage through a Cobra option even though you may end up paying a higher premium than you did while you were working.
2. Lock in other insurance benefits.
You probably also have some group life and disability insurance through your employer.
Obviously, one of the biggest problems with this type of coverage is that you often lose it when you lose your employment with that company!
This can especially be troublesome if you don’t go directly to work for a new company or, worse yet, start your own business. That coverage that you most likely need to keep in place can all of a sudden go away.
If you have a gap between employers, you may be “uncovered” until you get that new job. You see, a disability policy is designed to protect your income. Because of that, there is no way to get a new policy if you currently don’t have any income. The time to get supplemental disability coverage is when you are still employed and not thinking about changing jobs.
If you are going directly to a new job with similar benefits, then you may be able to keep a blanket of protection.
If not, you may want to consider getting some private coverage that you can carry from job to job. We have found that in many cases we can get cost-effective term life insurance policies by going straight to the insurance company versus paying for group coverage. This may be a good time to set that up.
Disability coverage may be a harder thing to replace if you don’t have a new job yet. Hopefully, your new benefits will include a disability policy that can pay you monthly income should you become disabled.
3. Take care of your old retirement plan.
If you have a 401(k), Simple IRA, or a SEP (Simplified Employee Pension), you most likely will have the option of leaving it as is, rolling it to your new company plan or rolling it over to the investment firm of your choice.
You may have other investments already set up somewhere and might find it beneficial to house things together. Luckily there is no time limit to move things around, so with all the other things that are going on you might want to put this off until things settle down.
You also may have the option to roll your old plan into your new one at your new employer if you find that the plan options are good ones.
The one thing you definitely should NOT do, if you are under age 55, is roll your 401(k) over into an IRA. Why? Because starting at age 55 you can take withdrawals from your 401(k) without facing a 10% penalty, unlike an IRA, where you are required to wait until age 59 ½ to avoid the penalty.
You might not need the money right away, but why take the risk of locking up your money for an extra four years? Play it safe and don’t rollover your 401(k) into an IRA too soon.
4. Sign up for your new retirement plan.
Don’t let your retirement contributions stop because you forget to sign up for your new plan.
If you are getting paid more than your prior job, consider increasing what you save. Review the new investments options and use this time to fine tune how you have your money allocated.
Even if you aren’t getting a bump in pay, this is a great time to make sure you are maxing out your 401(k) to its greatest potential.
Look past the basic pre-tax contribution. If you are over 50, don’t forget that you can contribute an extra $6,000 per year, and that’s before the addition of any company match your employer might provide.
And here is something that no one tells you about. If your new company allows for after-tax contributions, you may be able to get a whopping $56,000 into your plan every year. This could turn into an annually contribution up to $36,500 into a Roth IRA…no matter how much money you make!.
Take advantage of your 401(k) and really max it out!
5. Be aware of annual limits.
When you work for a company, they help keep track of things like how much you have contributed to your 401(k), how much of your Social Security has been taxed, and how much you have added to your Health Care Savings Account (HSA) or Flexible Savings Account (FSA).
But a problem may arise when you work for two companies in the same year.
Let’s say that you have already hit your annual maximum contribution limit on your 401(k) plan at your old company. Your new employer is most likely going to assume you have a clean slate, and allow you to contribute as if you are just starting out for the year, thus creating a case where you over contribute to your 401(k) for that year.
The same may go for your Social Security taxes. The government only taxes up to a certain amount of your income when it comes to Social Security. You could actually have hit that amount at your first job, but then start paying again because your new employer is starting back at zero.
Another thing to be aware of is that if you are contributing to a HSA or FSA, both of which have annual limits, you will need to communicate what you have already done to your new employer.
The bottom line is that most of these annual limits will be worked out in the end, but it might be easier to prevent them from happening instead of clean them up the next calendar year.
“Vision without action is merely a dream. Action without vision just passes the time. Vision with action can change the world.”
– Joel A. Barker
So congratulations on your new job! But with any major change comes some necessary housekeeping.
If you just changed jobs and don’t know what to do next, let’s set up a time to talk.
CLICK HERE to become an Insider! Join my Email Insider Group to receive weekly tips and tricks on finance, education, home buying, insurance, Social Security and everything in between. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances.
© Byron Ellis