Moving from one company to another can bring a combination of excitement and concern. With important factors such as delivering the resignation notice, reaction of coworkers and many things to wrap up in the final days of a job, sometimes the financial aspects take a back seat. But there are several important financial-related items on the list that need to be checked off before moving on to greener pastures.
There are the obvious items, like timing of your last paycheck and vacation payout. It’s not common, but group benefits such as life insurance, disability income and long-term care insurance could turn into private policies to be continued outside of employment with a company. Also, double-check with the human resources department about any pensions that may exist as well as the terms. A job change would also affect any existing employee stock options.
Probably the most important decision to be made is regarding your 401k account. There are three choices for your 401k: leaving your funds in your employer’s plan even after your departure, transferring the 401k into your new employer’s plan, or completing a direct rollover to an IRA. According to the U.S Census Bureau, only 61 percent of workers over the age of 16 have employer-sponsored plans. Taking advantage of the opportunity to save for retirement is a huge benefit, so it makes sense to choose wisely.
When deciding on your 401k, it’s a great idea to consult your financial advisor, as they will be able to consider your entire financial picture and assist with this process. The option that offers the most flexibility, access to your funds and greater potential for growth is a direct rollover. If you’re no longer with a company, your money should not stay there and giving your money to your new company could limit your options too.
What are the biggest mistakes to avoid? Cashing out a 401k requires taxes and penalties to be paid for those under retirement age, eliminating a good chunk of the money instantly. Choosing to leave a company shortly before vesting is never smart, as it leaves money on the table. You’ll want to know what portion of your money is vested to understand if you will receive the full balance of the account. The decision to move jobs and take a higher salary may not offset the money left behind if you’re not fully vested.
After moving on to your new company, also seek the assistance of your financial advisor with your new benefits package. The right investment selections in your 401k and a full understanding of your insurance coverage is important. It may be that separate insurance policies are needed to provide the amount of insurance necessary for you and your family, as most company plans offer minimal coverage. Additionally, Health Savings Accounts can be beneficial to your overall financial plan, making some of your medical expenses tax-deductible.
For most employees their group life insurance goes away once they separate from service. Life insurance is a very important component of your overall financial plan- especially important for those that have young children and for those that are the primary earner. There are various types of life insurance that you can add to your plan. Term insurance is the most cost effective and provides the ability to protect your family with a tax free lump sum in the event of death. Term insurance is not truly an asset as after the term is up the insurance goes away. Thus the reason it is much cheaper than permanent insurance such as whole life, universal life or index universal life. This is a great guide to help you educate yourself on how to shop for life insurance. You can read it by clicking here: How to Shop for Life Insurance
All of the choices and decisions involved with a job transition can be overwhelming. It’s important to ensure that you make the right decisions for you that help to meet your long-term goals. If you have financial questions about your upcoming or recent job transition, contact the Bayntree Wealth Advisors team with questions on your retirement and income plan Contact Bayntree Wealth