5 things to consider when evaluating a job change
It’s no secret that it is a marketplace for job seekers right now. As companies continue to search high and low in the race for talent, employees may feel overwhelmed about changing jobs — particularly when it comes to how it will affect them financially.
While a new base salary can be tempting, it is important to evaluate a new compensation package holistically in order to better balance your options. Factors such as insurance, retirement plans, and stock options to consider, can be critical to your long-term financial health.
Here are five things to consider financially when deciding whether to change jobs:
1. Make a plan for your ex 401(k)
When you leave a job, there are four options for your 401(k) retirement savings plan or a similar retirement savings plan. You can leave the money where it is, cash it out, transfer the money to a new retirement plan, or transfer it to an IRA. Understanding the implications of each of these options is crucial.
Withdrawing retirement funds under age 59½ is punishable by a 10% fine, and any tax-deferred distribution is taxed as ordinary income on top of that. It’s best to keep the money in a retirement account to take advantage of tax-deferred growth and compounding over time. Leaving money in the plan is a better alternative than taking it out. However, we often recommend merging when you can.
We usually advise clients to transfer money to their new retirement plan or transfer it to an IRA. Having fewer accounts will help you keep track of what you have saved. If you like the 401(k) investment options for your new company, transferring money there may be the best option. It also leaves the opportunity for a more obvious back-end Roth IRA conversion.
2. Look at the finer details of the offered insurance plans
Health, dental, and vision insurance can be complex, and can vary greatly from employer to employer. Before you decide to accept a job offer, make sure you know the details of the insurance plan you are being offered. If you are leaving a large company in favor of a smaller company, first check whether they offer health insurance. Under the Affordable Care Act, employers with fewer than 50 employees are not required to provide health insurance. If your potential employer doesn’t offer insurance, it’s time to evaluate the special options you might have.
Once you know if the company provides insurance, it’s important to understand what you are responsible for paying in terms of premiums and deductibles, and to determine if the treatments you may need are covered. For example, if you see a therapist, check to see if mental health services are covered by the policy. The same goes for other medical needs, such as infertility treatments or acupuncture. If some of your priorities aren’t covered, can you cover the costs with your new salary? Determining this before accepting the offer will help you better plan financially for the future and balance the overall financial impact of taking on the job.
3. Know the rules of the road associated with your stock ownership
Offering equity as part of a compensation package is becoming increasingly common. How should you take a stock offer into account in your decision? First, learn the basic rules about stock offering. What type of stock is offered – a restricted stock unit (RSU), performance stock, incentive stock option (ISO), or non-qualified stock option (NSO)? Each of these has different tax implications. From there, be sure to read the fine print of the vesting schedule, payment rules and blackout periods, if applicable. And if you leave the company, it’s a good idea to understand if you’re going to leave the stock on the table, or if you have the ability to purchase your options. In some cases, your company may be willing to work with you on the stock purchase.
4. Account for all the advantages, no matter how small
Do you currently put money in a Health Savings Account (HSA) or Flexible Spending Account (FSA)? In an HSA, the money belongs to you, and any unspent amount can be used in the future. However, if you have multiple HSAs it is easy to lose track of what you have saved. Like your retirement, it may be best to consolidate and roll over your previous HSA funds into your new HSA plan, if you have one. Be sure to look at and compare the fees for the old plan versus the new one.
With the FSA, if you fail to spend the account before switching jobs, you lose that money. Make it a priority to spend this money before you leave.
Think about your current daily activities. How much will your new company contribute to your gym membership? Will you get a salary for your transportation and transportation? Is lunch provided, or will you have to include this in your budget? Thinking beyond real finances will help you plan holistically before starting a new business.
5. Reward yourself
Getting a new job is something worth celebrating. Especially if your new service comes with a signing bonus or a big salary increase, don’t be afraid to treat yourself. This can include a vacation, a special purchase, or anything else you’ve been looking forward to.
A new job is a big life decision that can often feel overwhelming. But thinking thoroughly about how your finances will change under the new hire and weighing your options holistically will ultimately lead to an easier transition should you decide to take the leap.
Senior Private Wealth Advisor, SVB Private
Julia Vanzler, CFP® CPWA® specializes in working with individuals and families to manage and protect their assets. It is committed to providing individualized and fully integrated financial solutions aimed at solving personal challenges and providing security and peace of mind. As a Senior Wealth Advisor at SVB Private, Julia works closely with colleagues and external advisors to her clients to provide thoughtful advice and guidance on investments, retirement income, philanthropy, estate planning and taxation.