Navigating a Job Transition

Believe it or not, a lot of people forget about their old 401(k)s. If you’re changing jobs, make rolling over your old 401(k) a priority. You have several options when it comes to an old 401(k):

• Keep it with your old employer.
• Roll over the money into an IRA.
• Consolidate the money with your new employer’s plan.
• Cash it out.

If your situation allows for it, we recommend either rolling your old 401(k) into an IRA or your new employer’s 401(k) plan.

Assuming both options are available to you, it’s up to you to decide. There are strong arguments to be made for both, and a Barnum financial advisor can assist you in making this important decision.

401(k)s have become one of the most popular types of employer-sponsored retirement plans. If you’re new to the world of 401(k)s, it can feel daunting trying to navigate the process. It’s important to understand key features of this employer-sponsored plan. Here are a few to keep in mind:

• Your employer automatically deducts your contributions from your paycheck.
• You contribute to the plan on a pre-tax basis, meaning your contributions come off the top of your salary before your employer withholds income taxes.
• Your employer may match all or part of your contribution up to a certain level.
• Your funds grow tax deferred in the plan – you don’t pay taxes on investment earnings until you withdraw your money from the plan.

We strongly encourage you to max out your 401(k) plan, or if your situation doesn’t allow for that, contribute up to the limit your employer will match. Employer contributions are basically free money once you’re vested in them, and by capturing the full benefit of your employer’s match, you’ll be surprised how much faster your balance grows.

We can help you determine how much to contribute, who to designate as your beneficiaries, asset allocation, and more.

As you prepare to change jobs, you will need to replace all of your previous coverage. Typically, your health coverage will end on your last day of work or the last day of your last month of work. It’s also important to understand any restrictions your new company may have on benefits.

If you end up facing a gap in your health coverage, you may be able to continue your employer-sponsored health insurance through COBRA for up to 18 months. However, you will be responsible for paying the premiums for COBRA, and the coverage is usually expensive. Other options include converting your employer-sponsored health plan to an individual plan or purchasing a short-term health policy that covers your health costs on a temporary basis (two to six months).

When you’re eligible to sign up for new health insurance at your new company, you’ll face several options. Our financial advisors can help you navigate each option and find the one that works best.

The same thing goes for life and disability – you will need to replace this coverage when you change jobs. Similarly, your eligibility to enroll in your new employer’s life and disability insurance may be delayed.

When you leave your old job, under most circumstances you will lose your group life insurance coverage and will face three options: (1) cancel the policy, (2) port the policy to another group plan with your new employer (only if the policy is with the same company), or (3) convert the policy to an individual life insurance policy, which would cost you more money because you’re responsible for paying the entire premium out of pocket.

Alternatively, you can apply for new life insurance coverage through your new employer or independently. While employer-sponsored coverage may be automatic and free, the coverage could be less than what you need for your situation. A job transition is the perfect time to review your options and consider taking out your own coverage or supplementing your employer’s coverage.

When it comes to disability insurance, many people often overlook this type of coverage. Just as with life and health insurance, you must replace disability as you will lose your group disability insurance once you leave your job.

If your new company offers employer-sponsored disability insurance on a group basis, consider enrolling – it’s often automatic, typically requires no premium, often increases as your salary does, and if offered as a paid benefit, it’s less expensive than individual disability insurance. However, like with employee-sponsored life insurance, this disability coverage may not be enough to secure you financially in the case of becoming disabled and unable to work. Therefore, we recommend purchasing individual disability coverage or supplementing your group disability coverage.

As you navigate this major life transition, you should adjust your budget as necessary. After choosing your benefits and retirement contribution, modify your monthly saving and spending and consider your new company’s additional perks, such as reimbursement programs, wellness programs, and tuition assistance.

The process of changing jobs can be daunting, as there is much to know and do. Here at Barnum, we are ready to assist you in navigating this process and making important financial decisions to secure your financial future.