Switching jobs can be a stressful and exciting process. We worry about proving ourselves to our new co-workers and if we’ll be able to perform at the level expected of us. We wonder how our new job will impact our lifestyle and our family. However, there are also some extra financial factors at play that deserve some attention as well. Here are a few financial considerations to make that you may have forgotten about.
Have a Cushion
While it’s always wise to have an emergency fund, it can come in really handy when you get a new job. Even if you don’t intend to take a break between your old job and starting your new one, there’s a possibility that you could get stuck without a paycheck for a longer period of time than normal. For instance, if you start your new job on a pay week, you may have to wait three weeks to collect a paycheck if the company issues bi-weekly paychecks. If your new employer only cuts paychecks monthly you may be waiting even longer. Additionally, there’s no guarantee that your direct deposit will be set up in time, so you may also have to wait for a physical check to clear your bank account. For all of these reasons, having a little cushion squirreled away to get you through those extra days can keep you from an otherwise dire situation.
Consider Your Insurance Options
A change in employer often means a change in insurance coverage. Health insurance is one of the first things that comes to mind. Ideally you want to maintain health insurance coverage with no gap in coverage. If you’re starting your new job quickly after leaving your prior employer, you may be in luck. Most company sponsored insurance plans will cover you for the entire month regardless of whether you were employed at the beginning or end of that month by your original employer. However, if you are not lucky enough to have your scenario play out that way, you may need to speak with your current health care provider about extending coverage past your termination date. This is called COBRA and it should be available as long as your company has twenty or more employees that it provides health care coverage to. The downside, is that the cost can be significant, so this is another place where having an emergency fund may come in handy.
In addition to health insurance, you should also consider your life insurance options. If you had been enrolled in a Group Term Life Insurance plan at your previous employer, that coverage will no longer apply to you once you terminate your employment with them. To ensure that you remain covered by a life insurance plan, check with your new employer to see if they also offer a group plan. If not, you may want to find your own plan independent of your employer. The good news about that is that you won’t have to worry about your plan not carrying over if you choose to switch jobs again in the future.
Not sure if life insurance makes sense for you? You can learn more here.
Rollover Your 401(k)
This step gets missed all the time, and it’s something that is so beneficial and simple to accomplish. If you had a traditional or Roth 401(k) through your previous employer, that plan will stay invested in its current form unless you roll it over into a new account. If your new employer offers a similar plan you can roll your 401(k) into your new employer’s plan. However, if your new employer does not offer you a 401(k) plan, you can still roll these funds over, but instead you will have to open your own traditional or Roth Individual Retirement Account (IRA) to effectuate the rollover. Once you know what new account you are rolling your funds into, contact that investment company and tell them you wish to rollover funds from an old 401(k). Typically they can’t wait to invest your money for you (since that’s how they make money) and they will walk you through a few simple steps to make it happen.
Why should you rollover your 401(k)? While your money might be sitting in a 401(k) with your old employer’s investment company and growing, the issue is that you no longer qualify to have your account actively managed. So while you may see growth right now, if the investment fund decides to stop managing the fund that you have your 401(k) assets invested in, that growth could stop all together. Also, you may lose sight of these accounts if you’re not seeing them everyday and you may miss out on better investment opportunities as a result. Lastly, although you are able to withdraw your 401(k) funds in the event of termination, you stand to lose a lot of money that way. Unless you are of retirement age (59 ½ years old), you will be responsible for taxes and a 10% penalty should you close out your account to collect cash. On the other hand, a rollover done correctly is a tax-free and penalty-free event.
Written By: Lindsay Dell Cook
Lindsay Dell Cook is a CPA, finance writer, and founder of Budget Babble. She lives in Philadelphia with her uber supportive husband and adorable daughter. When she's not working, she enjoys spending time with her family, taking their lovable mutt for walks, or reading a good book while buried under a pile of cats.