Four Financial Changes to Make with Your New Job

Whether you have accepted a position with a new company or decided to change career paths, a new job can bring about exciting changes in your life. After updating your LinkedIn profile, your new job will require several financial decisions. Should you move your 401K? Let's look at the top four financial changes you will need to make when you accept your new position.

New Employer Benefits

First and foremost, you will need to review your new employer's benefits package, including health insurance, disability, retirement, life insurance, dental insurance, and vision insurance. Additional benefits offered may be helpful with your day-to-day expenses or assist you with past and future education-related items. Reviewing these benefits with a CERTIFIED FINANCIAL PLANNER^TM practitioner can help determine which benefits will work best for you and your family.

Health Insurance

Health insurance is usually top of mind for most folks when changing positions. Signing up for health insurance is a logical first step when enrolling in your new benefits. Ideally, you will have options to choose from in this area, from High Deductible Health Savings Account (HSA) eligible plans to more traditional Preferred Provider Organization (PPO) plans. Determining which is best for you is a two-part decision related to your health and financial preferences. It is best to discuss these options with your financial planner if you are uncertain about which plan to select.

Dental & Vision Insurance

Not all employers will offer dental and vision benefits. But if your new employer does, the rates are usually lower than ones you could find as an individual in the marketplace. If some or all of the premiums are covered, you should enroll in dental and vision coverage.

Life Insurance

Life insurance provided by your employer can be a cost-effective way to access coverage at discounted group rates. Group rates can be less expensive than individual rates; however, they use a sliding scale, and as you age, that cost-benefit to the group rates may erode over time. So, it would be best to compare your rate through your employer to a rate you can acquire as an individual.

Employers will generally provide up to a specific salary amount as a core benefit to you.  If that amount is well below your current base salary or you would like additional coverage, you should determine if your employer offers the ability to purchase additional coverage.  If you have children, own a home, or have significant liabilities that you would not want to leave to someone else in the event of your death, you will likely need insurance beyond what your employer provides. You may also be able to get life insurance for your spouse or children through your employer. These are all options to consider and costs to compare with insurance you can obtain directly as an individual.

Disability Insurance

Short-Term and Long-Term Disability Insurance provides income to individuals who can no longer work due to an illness or disability. It is an often-overlooked area of benefits vital to maintaining a sound financial plan and ensuring you have a safety net for financial pitfalls. Most companies will cover up to a certain percentage of your base salary for short-term disability (STD), commonly defined as a period of 90 days or less.  STD can be used for childbirth, required surgeries, and medical procedures, providing some of your compensation while you cannot work. Employers sometimes offer long-term disability insurance at a discounted rate you might not be able to obtain on your own. This type of insurance is cost and situation-dependent and covers longer-term removal from active employment. To determine the coverage you might need in this area, consult a CERTIFIED FINANCIAL PLANNER^TM practitioner to help you plan for a possible long-term disability event.

Retirement Benefits

Most all large employers offer retirement benefits. Retirement plan options are vast and will vary from one employer to another. Depending on the industry, your new employer may offer one or more of the following types of plans: 401(k)’s, 403(b)’s, Roth 401(k)’s, Roth 403(b)’s, Cash Balance Plans, Pension Plans, Stock Purchase Plans, Stock Options, 457 Plans, and the list goes on and on. Some of these plans may not be marketed as retirement plans; however, they are all designed to help you save or defer some of your earnings to grow for use in retirement. These plans are all administered in different ways, and their investment options will also vary. It is important to remember that saving for retirement is critical to long-term financial success, no matter how much or how little. It is not about timing the market with your retirement contributions but time in the market. Be sure to contribute as much as you can, and if you need assistance determining the right amount to meet your retirement needs, consult your financial advisor. Check out our previous blog article, Choosing the right retirement plans for you (alleghenyfinancial.com), to learn more.

Old Retirement Plans

After lining up all your new benefits, the next major decision is what to do with old retirement plans. Understanding how to transfer a 401K to a new job is just one critical step. Since you are no longer at your former employer, you have no way to contribute to this plan unless you move it. Plan participants leaving an employer typically have four options (and may engage in a combination of these options):

1. Leave the money in the former employer’s plan, if permitted.
   You will continue to remain invested in the current investment options. However, no new contributions will be allowed.
2. Cash-out the Employer Plan assets and pay the required taxes on the distribution.
   Cashing out the account is an option and will give you immediate access to your money. However, there are drawbacks. First, taking the money now means your money will no longer have the potential to continue to grow tax-deferred. Second, any cash distribution will be subject to state and federal taxes, and, before age 59 ½, a 10% withdrawal penalty may apply.
3. Rollover the assets to a new employer’s plan (if available and rollovers are permitted); or
4. Rollover Employer Plan assets to an IRA or Individual Retirement Account.
   If appropriate in your situation, your investment advisor may recommend that you roll over your employer plan assets to a Rollover IRA. For example, you could move a 401K to an IRA. You do not have to pay federal or state taxes if you roll over employer plan assets to a Rollover IRA, and the funds in an IRA continue to grow on a tax-deferred basis. When you withdraw the money for retirement, you will only be taxed on the amount you withdraw from the Rollover IRA each year.

It’s essential to know the types and range of investments and fees of an IRA. Check with your former employer’s plan administrator to confirm plan details and requirements. Also, as you consider your options, it’s important to consult with your tax professional or investment advisor before making any decisions.

Emergency Fund

When changing jobs, there may be a gap between your pay periods. Any sound financial plan begins with a substantial emergency fund, so you can easily absorb this type of change. If you do not have an emergency fund (usually 3-6 months’ worth of your expenses) saved or started, now would be an ideal time to begin one.

Income Tax Withholding

When you begin a new position, completing your W4, or Employees Withholding Certificate, will be another item on your agenda. Determining the correct withholding amount is usually confounding for most people as these forms can be challenging to understand. This area would be another great time to discuss with a tax professional or a CERTIFIED FINANCIAL PLANNER^TM practitioner.

Changing careers or taking new jobs are exciting endeavors; they can bring much happiness as your new career or job will fulfill your desires as a professional. Financial decisions are often forgotten or placed on a shelf. Contact a professional to assist you in making these critical decisions.

Author: Author: Eric Matsko, CFP^® | Financial Advisor | Allegheny Financial Group

Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.