Financial considerations when changing jobs
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Accepting a new job is a pivotal moment in your life. While financials might not be on top of your to-do list, it’s important to take some time and strategize. There are a few things you can get a jump start on.
Health Insurance
When you change jobs, one of the first things you must do is coordinate benefits. When coordinating health insurance, determine if your new employer requires a waiting period before enrolling. If they do, fear not! You should be able to enroll in COBRA with your former employer for temporary insurance coverage.
When you change health insurance, your policy starts from scratch. In other words, any deductible you have met so far in the year does not transfer to your new policy. The same goes for changing your type of coverage. For example, if you switch from a High Deductible Health Plan (Health Savings Account qualified) to a non-HSA plan, you may be tempted to max out the HSA before leaving, but you can’t! You can only contribute a prorated amount for the months you are enrolled in an HDHP.
On the other hand, if you had an HSA with your former employer and planned to enroll again with your new employer, be sure that the total contributions between those two HSAs don’t exceed the maximum for the year. The maximum contribution for 2023 is $7,750 for family coverage and $3,850 for single coverage, and those age 55 and older can contribute an additional $1,000. Keep in mind that employer contributions count towards these maximums!
Retirement Plans
Changing retirement plans can be more of a process, as there are a few more strategies to consider. For example, does your former employer have a vesting schedule on their 401k? If you’re only a month away from fully vesting in your employer contributions, it may be worth pushing your termination date forward to meet that vesting date.
Do you typically contribute up to your employer match in your 401k? If you’re leaving mid-way through the year, you could be leaving some free money on the table. Consider contributing enough to get the full employer match before you leave.
Some employers require a waiting period to participate in the company 401k, typically six months. So if you’re in a situation where the next entry date for 401k enrollment falls in the next calendar year, consider contributing more or maximizing your old 401k before leaving.
Like a Health Savings Account, you need to be sure that the total contributions between your old and new 401k don’t exceed the maximum for the year. For 2023, the maximum contribution is $22,500 plus an additional $7,500 for those aged 50 and over. Unlike an HSA, employer contributions do not count towards these annual limits.
Speaking of 401ks, what should you do with your old retirement plan? Leave it be, roll it into your new 401k if allowed, or roll it into an IRA? Frequently, individuals choose one of the first two options, as rolling it into an IRA can hinder your ability to make backdoor Roth contributions in the future.
More Money, More Problems?
As you prepare for that job change, be aware that you will likely have a higher income than in prior years and that higher income has some implications. You may have decided that any unused paid time off from your former employer is to be paid out. As a part of your new compensation package, you may have received a higher salary and a sign-on bonus. In addition, some employers will cover any moving expenses associated with your move – while this is a huge perk, keep in mind that moving expenses are taxable as income!
While having more income is a blessing, it does require more planning. Many savings opportunities and tax credits are based on your Modified Adjusted Gross Income. Are you contributing directly to a Roth IRA or making deductible IRA contributions? Is someone in your household attending college, and do they qualify for education tax credits? All of these have income thresholds you must meet to be eligible.
Summary
Changing jobs can be overwhelming, but don’t let your finances sit on the back burner. Reach out to your financial advisor for support and guidance during this exciting time.
Olivia Maynes, CFP, is a Financial Planning Coordinator at Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.BedelFinancial.com or email Olivia at omaynes@bedelfinancial.com.