The average person will change jobs 5-7 times in their working lives, meaning approx. 30% of the labor force will change jobs every 12 months (Source: U.S. Department of Labor). A job change can be both exciting and stressful, so it is important to have a sound plan to help ensure that your finances are in line before and after making a switch.

What should be considered before leaving your current job?

1. Use old benefits while you can and review new benefits at your new employer.

For example, not all employers offer dental and vision insurance, so if the job you’re leaving does and the new one does not, then schedule an appointment while you still have it.

2. Review your life and disability insurance.

Check and see if you keep any of it when switching jobs (if you purchased extra) or if you lose it all when you switch jobs. It may be wise to purchase outside policies that are not an employment contingency.

3. Check the balance of your flexible spending accounts if you have one.

These accounts are “use it or lose it”. Submit any claims before your termination date so that you get reimbursed

4. Review your final paystub to make sure all final compensation was paid.

This could include commissions, bonuses, paid time off, etc.

5. When reviewing final paystub, make note of how much was contributed to your 401k.

Your new company will not know how much you have contributed to your past 401k. For example, if you have maxed out your 402g limit ($20,500/year if under 50) by September, and switch jobs in October it is important to make sure you do not make any contributions to the new plan until January. If you have contributed partially, it is important that the combined contributions in one calendar year (between old and new job) do not exceed the 402g limit.

6. Review any non salary compensation (such as equity compensation like company stock).

If you have stock options or restricted stock units, make sure you are aware of vesting rules, what you are paid when you leave, and tax consequences. Many companies require you to exercise stock options within 90 days of termination or you lose them.

7. Make sure that you are aware of any non-compete or restrictive covenants under current employer before accepting the new job.

What should be considered when starting your new job?

1. Review your new employer retirement plan.

When setting up your new retirement plan, it is important to review if Roth or any after-tax contributions are allowed (or mega back door Roth funding). Depending on your tax situation, you can decide on Roth vs pre-tax funding, and setting up the investment allocation. As previously mentioned, you will need to be aware of how much was contributed to your past plan to make sure you do not over contribute.

2. Decide what to do with your old retirement plan.

Once you have left your old job, you need to consider the benefits of rolling your old 401k into an IRA, transferring it to the new employer’s plan or leaving with your previous employer . If an IRA is in your best interests, it may be wise to convert the balance to a Roth IRA, depending on your tax situation.

3. Review your new employer’s benefits.

Have a clear understanding of new health, life, and disability insurance. If there is any gap in employment, you may need to enroll in COBRA health insurance, or switch to your spouse’s plan if married, to cover any gaps until you start the new job.

4. Be aware of your health savings account.

You will want to decide what to do with it. Sometimes you can move it into your new one (if you have one) or you can move it to any custodian of your choice.

5. Review any non salary compensation at your new job.

Understand all of your new comp structure and if it includes any equity compensation. If you have RSUs or stock options, decide on the best strategy for exercising options, making sure taxes are withheld on RSUs, etc.

If any part of your financial situation is changing (income, benefits, retirement plan, etc.) it would be beneficial to consult a financial advisor to make sure that your financial plan is still on track and aligns with your family’s goals. Following these tips can alleviate much of the financial stress that comes along with making a job change.

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Equilibrium Wealth Advisors is a registered investment advisor. The contents of this article are for educational purposes only and do not represent investment advice.

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