Leisl L. Cording, CFP®, CDFA®
Senior Vice President & Financial Advisor
This month we’ve been sharing about various mid-year adjustments you should make to your financial plans. But after the tumultuous events of the last 18 months, there are many people whose plans are very much in flux, not the least of which is a potential change in employment.
The effects of the pandemic – on the ways in which we work, on changes in the job market, and on life perspectives and priorities – are causing many people to either have to change or want to change their job or career, even as we begin to move past the pandemic itself.
In fact, in Microsoft’s annual Work Trend Index Report, released in March, a survey of more than 31,000 people showed that 41% are considering leaving their current employer this year. If you are too, there are certain things you should do to plan ahead for your job transition so that you can protect your finances in the process.
When Leaving Your Old Job
As excited as you may be about moving on to a new job, it’s important to first tie up loose ends at your old one. Be sure to cover the bases below, and don’t forget to save all documentation related to your separation.
- Meet with a human resources specialist or benefits counselor to review your benefits and find out which you will lose — and may need to replace — and which you can take with you. For example, benefits such as employer-provided health, disability, or life insurance will expire. COBRA can help you fill any gaps in health coverage, but be sure that you understand how the program works and how much it costs. You may be entitled to back pay, vacation days and paid time off, or future pensions. Ask how any such compensation will be handled.
- Decide what to do with your qualified retirement plan assets, such as your 401(k). If your employer contributed to your account, determine what portion, if not all, of those contributions are vested. You will not lose the vested amount upon departure. Then, decide how you will manage those assets when you leave your job. You have several options. You can move your plan assets to an individual retirement account (IRA). With a direct (trustee-to-trustee) transfer, the funds maintain their tax-deferred status and avoid any penalties. You can leave the account with your old employer, if permitted. This may be a good option if you are satisfied with the plan’s investment choices and costs. Or, you can withdraw the assets. Unless you meet specific conditions, however, your employer may withhold a percentage for estimated taxes, and you may pay additional taxes and penalties.
- Determine the value of any stock options and decide on a plan of action. If you have vested stock options, find out how you have to exercise them —for example, are accelerated expiration schedules in place? If financially possible, exercise any options that are “in the money” (the exercise price is lower than the market value). You'll want to make sure you are consulting with your tax professional as there may be tax consequences when exercising your stock options.
- Review your life insurance and disability insurance policies. Employer-provided life insurance is active only while you are employed. You may be able to convert your policy to an individual policy offered by the same insurance company, for which you would pay the premiums. If you were given the option to buy additional insurance through your employer’s plan, you may be able to keep this coverage for yourself, depending on the policy. Keep in mind, however, that the premium for this coverage will likely be higher.
- Assess your other benefits plans. If you have an executive benefits plan or a nonqualified deferred compensation plan, be sure to understand your options. Many plans require a lump-sum distribution, which may affect your taxes.
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When Starting a New Job
Meet with a human resources representative and ask detailed questions about your new benefits package. Take the time to assess your options so that you can make the right decisions during your enrollment periods. Don’t forget to do the following:
- Enroll in the new retirement savings plan as soon as possible to take full advantage of any employer match. Consider increasing your contribution to the maximum allowed. Small changes can add up to larger savings.
- Choose the health insurance option that best matches your needs. Find out when open enrollment takes place in case you wish to make changes in the future.
- Review your life and disability insurance coverage to ensure that you have adequate protection.
- Fill out beneficiary designations for your insurance policies and savings plans. Once the information is processed, confirm for accuracy.
- Finally, review your federal and state tax status. A salary change may affect your withholding requirements, estimated tax payments, and investment strategies.
Making a change in employment is a big step and although it often comes with many rewards, navigating the process while ensuring you and your family are financially protected can be stressful and overwhelming. It’s times like those that guidance from a trusted and strategic financial advisor can make all the difference.
We help our clients to Plan Well and Invest Well through all of life’s changes so that they can Live Well, whatever the future may bring. See how we can help you do the same and get in touch to get the guidance and planning you need to begin your next chapter with confidence.
Presented by Vice President, Associate Financial Advisor Leisl L. Cording, CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com.