5 Key Financial Moves to Make When Leaving Your Job
Are you saying goodbye to your old workplace and moving on to a new opportunity? If you are, it's important to ensure you're financially ready for your next adventure.
In the stress of wrapping everything up at work, it's easy to let things fall through the cracks. To make sure you don't leave anything important undone, here are five key financial moves to make when leaving your job.
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1. Claim your unused time off
If you're entitled to paid time off at work and you haven't used all of it, your employer may be required by state law to compensate you for this unclaimed time.
Find out from HR exactly how many days of vacation you have outstanding, and check this against your own records (if you keep them). Then talk with your company about when and how you'll be paid for these unused days.
2. Make plans for your health insurance
Leaving a job often means giving up employer-sponsored health insurance.
If you're moving to a new job, you may be able to get covered by that company's plan from day one. But be sure to confirm this, as some companies have a waiting period for new employees. You don't want a gap in coverage, as a single illness or injury during that time could lead to financial disaster. If you need coverage in the interim, you may be able to buy a short-term health insurance plan. Otherwise, you will need to consider one of the other options described below.
If you won't be getting health insurance from your new employer, you'll need to explore alternatives. You have a few options:
Get covered on a spouse's plan. If your husband or wife has coverage, they may be able to add you as a dependent. You may have to pick up all or part of the premium costs, depending upon whether your spouse's employer pays for dependent coverage.
Sign up for an Obamacare plan. You can sign up at any time of the year for a plan sold on one of the federal or state healthcare exchanges created by Obamacare. That's because losing employer-sponsored insurance is a qualifying life event that allows you to get covered outside of an open enrollment period. Depending on your household income, you may be eligible for subsidies to help cover premium costs.
Stay on your workplace plan. Under COBRA rules, you can typically stay on your current employer's plan for up to 18 months (or longer if you're disabled) after you leave work. You're eligible for COBRA whether you quit, were laid off, or were fired, unless you were fired for gross misconduct. But you should know your employer likely won't subsidize your health insurance premiums any more. This means using COBRA to keep your same policy could be very expensive, since you now must pay the full cost yourself.
If you'll be getting insurance from a new job soon, you can stay on COBRA, an Obamacare plan, or your spouse's plan just for a short time until your new coverage kicks in.
3. Decide what to do about your 401(k)
If you were invested in a 401(k), any money you invested will continue to belong to you after you leave your job.
If your employer made contributions, you can keep them as long as they were vested. Some employers require you to work for a certain period of time before contributions vest. If that's the case, and you haven't been with the company long enough, you may get to keep only some of your employer's contributions, or none at all, when you leave your job.
You'll have to decide what to do with money and assets in the 401(k) that belong to you. You have a few possibilities:
Keep the money invested in your current 401(k). This is the simplest approach and doesn't require you to transfer money or assets to a new account. However, if your company is shutting down the 401(k) (say, because the company got acquired) or if you had a low balance in the account, you may not be allowed to keep the money invested. If that's the case, you'll need to make a different choice.
Roll the money over. You can move the money in your old 401(k) to your new 401(k) with your current employer. Or you could roll it over into an IRA. This is the best choice if you don't want to manage 401(k)s with multiple employers or if your current 401(k) has limited investment options or high fees and you could move the money to an account with better terms. If you roll the money over, choose an account with the same tax treatment. Otherwise, if you roll the money from a traditional 401(k) into a Roth IRA, you'll be taxed.
Withdraw the money. Don't do this. You'll be taxed on the withdrawal and will face a 10% penalty. Just don't do it.
If you need to roll the funds over, you will have to fill out transfer forms. You may need to complete forms from your new employer's 401(k) administrator, your brokerage firm, and your current 401(k) administrator. Talk to your broker for your IRA or to those managing the 401(k) plans to find out the process.
4. Determine if you're eligible for unemployment
If you were let go from your current job and haven't found new work, you may be eligible for unemployment benefits. Eligibility rules vary by state, but typically you're eligible if you worked for your current employer for long enough, you aren't currently working and earning a lot of income, you didn't quit or weren't fired for misconduct, and you're actively looking for work.
Unemployment pays a portion of the wages you were earning before you were let go. It can help you stay afloat until you've found a new position. You should make your claim ASAP if you are eligible, as you want to minimize the time you go without income.
5. Adjust your budget to your new circumstances
Finally, you may need to change your spending habits to adjust to your new circumstances.
If you're unemployed or working in a job that pays less, this could mean cutting expenses to the bone. Make a careful budget to spend only on the necessities so unemployment benefits stretch further.
If you've gotten a new job that pays more money, you should still make an informed decision about how you'll change your spending. Many people just automatically inflate their lifestyle and end up spending more with little to show for their income increase. You can and should make a conscious decision not to do that.
Instead, sign up to have the additional funds you're earning deposited directly into a tax-advantaged retirement account such as your new 401(k) or an IRA. If you never even see the raise, you won't get used to having it, and the money will effortlessly help you save for your future.
Check these items off your to-do list when you leave your job
While you've got a lot on your plate when you're preparing for new work opportunities, it's important you get these tasks done. By making smart choices about your health insurance, retirement accounts, and new budget after you leave a position, you can ensure a job loss or job change doesn't have an adverse impact on your financial future.
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