If you’re contemplating a job change, consider these five things first.
If you have recently made a switch to a new job or you’re weighing an offer, what do you need to do before (or shortly after) making the change? Here are five boxes to check:
1. Job Timing Is Everything
If the timing of your offer is flexible, you might think about short-term financial milestones you can reach on your way out. That might include waiting until you receive a bonus. Some companies require employees to work for a certain amount of time before benefits such as 401(k) matching actually vests. So, if you’re close to your 401(k) being vestable, you might be able to wait in order to claim those benefits.
2. Keep Total Compensation in Mind
Sure, salary is important, but it’s not everything. Before accepting an offer because it ostensibly pays more, take the time to total up the value of all benefits. That includes a health care plan, bonuses, stock options, any 401(k) or other retirement matches or pensions, childcare perks, gym memberships, free meals and so on. After you combine all those factors, how do your options compare? Perhaps most importantly, what are your short- and long-term goals?
3. Avoid ‘Orphaning’ Your Retirement Accounts
If you’ve invested in your employer’s retirement plan, like a 401(k) or 403(b), it’s a good idea to think about what to do with it once you leave the company. Although you may be able to leave your money where it is, you might want to move your savings elsewhere to avoid having too many disparate accounts. Plus, you’ll likely need to continue paying administrative fees for that account, yet you’ll lose the support of the plan provider (that friendly HR rep may have answers for you, but you no longer work there!) and you may be out of the loop if there are any changes to the plan.
For many people, a good option is to roll over money from a former employer’s plan into an individual retirement account (IRA). Generally speaking, IRAs offer more investment options and flexibility, and provide you the chance to consolidate your accounts. This is only one of several available options and related considerations that should be considered, as detailed in the Important Information at the end of this article. One move that likely isn’t in your interest? Cashing out. If you’re below retirement age, removing money from your former employer’s 401(k) could subject you to serious tax penalties and early withdrawal fees, both of which could jeopardize your ability to retire comfortably.
Word of caution: Make sure you’re doing a direct rollover. If the check is made out to you directly, you could inadvertently get penalized because you’re officially “cashing out” the money before re-depositing it elsewhere. To avoid taxes and other penalties, the money should go directly from one account straight into another. Your IRA plan provider should be able to guide you through this process.
4. Make Some Benefits Choices
A new job means new benefits options. Now’s your chance to reassess whether you’d be best off with a low- or high-deductible plan, or if you’d like to start a health savings account. Are the dental and vision options worth the price? Pay attention to the options you chose at your last job—do you wish you’d done anything differently? Many big companies offer basic life insurance. Does it make sense for your situation to pay extra to increase that coverage?
Your new employer might offer perks that your old one didn’t, too. Can you contribute pre-tax dollars toward childcare costs? What about a subsidized gym membership?
5. Reassess Your Financial Plans
If this job change significantly changes your take-home income, this might be a good opportunity to think about your broader financial goals, which can include retirement, educational savings, a major purchase like buying a home or anything else.
Maybe you’ve taken a new job that pays less, either out of necessity or because you wanted to pursue a new career path. If so, it’s important to chart out how those changes will affect your ability to hit your goals.
Or maybe this new job represents a pay increase. Making more money might mean you can hit your retirement goals faster, but it might also mean that your retirement needs will go up, too, if your standard of living increases. Can you increase the percentage of income that you designate for savings?
Wherever your career takes you, good luck with the road ahead.
