Taking a new step—to paraphrase Dostoevsky—is what people fear most. Yet during the pandemic, millions took that new step in what’s been called the Great Resignation.
For those considering leaving a job for more flexible work options, higher pay, better benefits, or early retirement, it’s wise to revisit a handful of key financial decisions before moving on.
Take Charge of Your 401(k)
Before changing jobs, employees should determine how to proceed with an employer-sponsored 401(k).
While all money contributed by an employee to a 401(k) is 100% vested, keep in mind funds contributed by the employer may be on a vesting schedule and thus unavailable to take with you.
Employees should also confirm whether their retirement plan funds are pre- or after-tax contributions, as that will affect whether to roll the money into a Roth plan or a traditional plan.
There are several ways to proceed with 401(k) funds:
Leave funds with current custodian. If allowed, this option offers continued tax-deferred growth but individuals can no longer make contributions to that plan. The menu of available funds will continue to be subject to decisions made by plan trustees and administrators, which could be reason to roll funds out into an IRA or Roth.
Roll funds into an IRA or Roth IRA. Account consolidation and a potentially wider array of investment choices are the primary benefits of rolling a retirement plan over to an individual retirement account.
Roll funds into a new employer’s 401(k). This option offers continued tax-deferred growth, but investment options may be limited.
Cash out. Generally the least attractive option, withdrawals are taxed at ordinary income rates, and there’s a 10% penalty if funds are withdrawn before age 59½.
Make an Insurance Plan
Understanding insurance options and ensuring continual healthcare coverage for yourself and your family are essential to a well-planned job departure.
Health insurance
COBRA coverage. Most workers leaving a job are eligible to keep their current health plan for a limited time (18 or 36 months) through COBRA. The downside is that cost goes up, since former employees must pay their share of the premium as well as the portion previously paid by the employer.
While keeping an existing health plan might make sense for some, COBRA coverage may be more expensive than purchasing temporary coverage.
Flexible savings accounts. Depending on the plan, individuals have 90 days to submit claims for FSA-eligible expenses while employed. Unused money at the end of the year is returned to the employer.
Health savings accounts. Employees can keep and continue to use health savings account (HSA) monies for qualified health expenses.
Life and disability insurance
Disability insurance and life insurance are often tied to the employer and generally stop once an employee leaves a job.
However, it might be worth asking an employer whether it’s possible to take the life insurance with you. The policy could be converted to an individual policy, though premiums are likely to be higher.
Assess Company Stock Options
Companies are not obligated to remind departing employees about any shares they may be entitled to, so it’s important to look into whether you have equity—and what type.
Individuals with restricted stock units (RSUs) receive shares of stock when certain conditions are met, such as staying at the company for a certain amount of time. These are yours to take with you.
Those with vested, unexercised options must decide whether they wish to purchase those shares when leaving their job. There are often only 90 days to complete the purchase, or those options are lost forever.
Finally, employees working for companies with an Employee Stock Purchase Plan (ESPP) might consider one last purchase of company shares at a discounted price (often up to 15% off market price) before leaving a job. Those shares are yours to keep, and discounts won’t be available once you leave.
Enjoy an Exciting New Venture
Employment transitions can be overwhelming, but don’t let fear stop you from taking a new step into the next great chapter in your life.
If you’re considering a big job change, don’t hesitate to reach out to Vista. We’ll help you plan for the financial impact of a transition and make the most of your new opportunities.