Congratulations, you landed a new job! Hopefully, it’s the job of your dreams or at least a lot better than your previous one.
Now that you’ve said “I do” to your new employer, it’s now time to tackle the financial things to do when changing jobs. Don’t worry, the list isn’t overwhelming (although we certainly understand the stress of moving and changing jobs), but many of these items are time sensitive and could have a major impact if not handled correctly.
If you work with a financial advisor, then they should be able to help you with many of these. However, if you’re more of the DIY type, then this job transition checklist will fall on you.
Probably the most important of all is making sure you don’t go without health insurance. Most employers will have a grace period of 30-90 days before you will be active in their plan.
So, in the meantime, you’re going to need to get insurance through COBRA. It will be a little pricey since it’s only going to be you paying for it, but you can’t go without it.
You are eligible for COBRA for 18 months after leaving your previous employer, so let’s hope your new employer’s coverage kicks in at some point during that time frame.
If not, then you’re going to have to fund your own health insurance for you and your family. It’s not cheap if your employer isn’t helping out, but, again, you can’t go without it.
If your new employer offers health insurance and you’re not on your spouse’s coverage, then you’re going to need to pick one of the coverages that are offered.
As for what’s best for you and your family, it really depends on your health situation. While I am a big fan of high deductible policies because they offer lower premiums – which means you are self-insuring yourself a little more – they aren’t right for everyone.
However, why I like high deductible policies even more so is because they allow you access to a Health Savings Account (HSA). The HSA is the most tax-advantaged account available.
Contributions are pre-tax, they grow tax-free, and as long as this money is used for qualifying health expenses, distributions are completely tax-free. It’s what I like to call the “triple tax threat.”
Again, a high-deductible policy might not be right for you and your family. Perform your due diligence and make the right choice with your new employer.
Understand your new employer's 401k or other retirement plan. Does it offer a match or profit sharing? What are the investments available as well as the expenses? What about the vesting schedule?
These are all questions you need to find out to ensure you make the right choice when signing up for your new 401k.
If you’re lucky enough to be offered or given stock options and/or restricted stock units, then you’ll want to find out the details.
How are they taxed? Should you fill out form 83b for tax purposes (speak with your CPA or financial advisor)? What is the vesting schedule? Are they qualified or non-qualified options?
All these questions and more should be asked and answered. I know it’s probably getting a little overwhelming at this point, but it’s very important you know the details of each of these benefits. Again, if you work with a financial planner, they should be able to do all the heavy lifting.
If they offer group long-term disability, then, most likely, you’re to want to get signed up. This provides income replacement if you were to be out of work for illness, injury, etc.
Group policies are much less expensive, so it normally makes sense to go with the group policy. However, contingent on your income and the limits set on your group LTD, you may need an additional policy outside of work depending on your own situation.
Like group LTD, group life insurance is typically a yes. Everyone qualifies regardless of health and, for the most part, it’s pretty cheap.
The only downfall is, you are limited by how much you can purchase. It typically tops out at 3-5 times your salary, which isn’t enough in many situations.
If this is the case for you, then you’ll want to get an individual life insurance policy in addition to your employer group policy. Again, you will need to determine this yourself – there are plenty of life insurance calculators out there – or work with your financial advisor to determine the right amount for you.
If you have access to a flexible spending account (FSA), then I would consider participating. This account allows you to pay for medical expenses with pre-tax money. Note: if you have an HSA, you cannot participate in an FSA (only a dependent care FSA).
There are some nuances to FSA’s, so check with your employer if you can carry money over to the next year (if you haven’t spent it all) or if you have to spend it all by March 15 of the next year.
If you pay for daycare, then it is most likely a no-brainer to contribute to a Dependent Care FSA to pay for childcare expenses on a pre-tax basis. In 2018, you can contribute up to $5,000 to a Dependent Care FSA.
In daycare world, you can blow through that in no time. If you max it out and spend all of it, then that could mean well over a $1,000 in tax savings depending on your tax bracket.
Next up on the list is to decide what to do with your 401k when leaving your job – or whatever retirement plan you may have had there. Yes, you can leave it there, but I would suggest taking it with you to make things easier in your financial life.
Your two options are to roll it over to your new employer's plan or to roll it over to an IRA. You will need to determine the best choice for you.
If your new employer’s retirement plan has incredible funds and low expenses, then it might make sense to move it there. If not, then you might go the IRA route, especially if you already have one open.
Regardless of which of the two options you go with, consolidating your retirement accounts just makes your financial life simpler. It’s easier for you, and if something were to ever happen to you, it’s going to be much easier for your spouse.
Your final tip is to reassess your cash flow and budget now that you’ll be getting a new paycheck – which most likely will be a different amount than your previous paycheck.
Whether it’s more or less, a reassessment of your cash flow, budget and expenses needs to happen. If it’s less, then you may need to cut back on some expenses – and no, slashing expenses doesn’t mean slashing savings unless absolutely necessary.
If you’re bringing in more money now – awesome – then it’s time to figure out where that money should go. I would highly recommend allocating at least 50% of that increase to savings and you can spend the remainder.
This is only a generality as your situation and goals may require more or less
As for where those additional savings should go, it could be your 401k, a savings account, an IRA, your children’s college fund, etc. It’s really up to you.
So, there you have it. The key financial tips you need to know when changing jobs. It can be a little overwhelming, but I have faith you can get through it. Best of luck!
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