In today’s workforce, it’s common for individuals to change jobs multiple times throughout their careers. Unlike previous generations, where staying with one company for decades and retiring with a pension was the norm, modern career paths are more dynamic.
It’s not uncommon for people nowadays to switch jobs every few years, seeking better opportunities, higher pay, or improved work-life balance. However, changing jobs also comes with financial considerations that can significantly impact your short-term and long-term plans. Here’s what you need to know.
Income Comparison
One of the first things to evaluate when switching jobs is your income. It’s essential to compare your current salary with the offer from the new employer. Beyond the base salary, take into account bonuses and commissions, as well as the likelihood of achieving performance-based incentives.
Additionally, consider the timing of your first paycheck in your new role to avoid any cash flow disruptions during the transition. Understanding how your income will change can help you better prepare for potential gaps and ensures a smoother financial adjustment.
Retirement Benefits
Retirement benefits are another critical aspect to review. Employers often offer matching contributions to retirement plans, but the terms can vary significantly. Check whether your new employer’s retirement plan offers a match and how it compares to your current one.
Also, verify if you’re fully vested in your current plan—leaving too soon might mean forfeiting part of your employer’s contributions. When you leave, you’ll want to consider what to do with your old 401(k). Generally, your options are to leave the funds in your former employer’s plan, rollover to your new employer’s plan, rollover to an IRA, or take a lump sum distribution. There are potential advantages and disadvantages to each option so it is important to review the options with your financial professional before making a decision.
Benefits Package
Your benefits package plays a significant role in your overall compensation. Evaluate the new employer’s health insurance coverage, including premiums, deductibles, and out-of-pocket maximums. If you have a high-deductible health plan (HDHP), check whether you can continue contributing to a Health Savings Account (HSA).
For families, consider other benefits such as dental, vision, and life insurance coverage. If the new employer’s life insurance is insufficient, think about purchasing a private policy to ensure continuous protection for your loved ones. These additional benefits can significantly affect your overall financial well-being.
Equity Compensation
Equity compensation is another area to scrutinize. If your current job offers restricted stock units or stock options, find out if any of them are set to vest soon and whether staying longer could be beneficial. Timing can play a crucial role in maximizing your equity compensation.
When leaving, you may have a limited window—often 30 to 90 days—to exercise stock options. Missing this window could mean losing out on a key component of your compensation. Plan ahead to ensure you make the most of these opportunities.
W-2 vs. 1099 Employment
Switching jobs can also bring tax implications, especially if you’re moving from W-2 employment to a 1099 contractor role. W-2 employees typically receive benefits and have taxes withheld by the employer, while 1099 contractors must handle their own taxes and benefits.
Evaluate how this shift could affect your cash flow, retirement planning, and overall financial strategy. It’s also important to understand the additional responsibilities that come with being a contractor, such as self-employment taxes and managing health insurance independently.
Health Insurance Transitions
Health insurance transitions can be a significant challenge when changing jobs. Understand how the new plan’s coverage and costs differ from your current one. If there’s a gap between jobs, you might need COBRA coverage to avoid being uninsured.
Additionally, review options for Flexible Spending Accounts (FSAs) or HSAs and consider whether to leave your HSA funds where they are, roll over to a new HSA, or roll over to your new employer-provided HSA. Making informed decisions about your health insurance helps ensure you maintain continuity in coverage.
Managing Old Retirement Accounts
When it comes to retirement accounts, you should consider what you can do with your 401(k) from your previous company. You have the option to leave your account with the old company, which is the easiest and doesn’t require any effort. But keep in mind that leaving money in your old 401(k) plan may lead to unexpected changes to the plan’s investment options.
You also may have the option to roll over your retirement account to your new employer’s plan or an IRA, which can help you stay in control of your savings and maintain your investment strategy.
Proactively managing your retirement accounts during a job transition helps you avoid potential pitfalls and keeps your long-term goals on track.
Negotiating Your Compensation
Negotiating your compensation is another crucial step. Job changes often present the best opportunity to secure a higher salary, better benefits, or more flexible working conditions. Don’t be afraid to ask for what you’re worth.
Consider negotiating for sign-on bonuses or relocation assistance if applicable. Being prepared to negotiate ensures you start your new role on the best financial footing possible.
Career Impact
Finally, think about the broader career impact of the new role. Ensure the position aligns with your long-term goals and offers opportunities for growth. A higher-level title can serve as a resume booster and open doors to future opportunities.
Switching jobs can be a pivotal moment in your career and financial life. By carefully evaluating these factors and making informed decisions, you can set yourself up for long-term success. Need guidance on navigating the financial changes that come with a job switch? Let’s connect!
Content in this material is for general information only and is not intended to provide specific tax or financial advice or recommendations for any individual. Clients should consult with their qualified tax and financial advisors as appropriate.
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