Don’t leave any assets behind.
With the region experiencing an uptick in employment recently, you may be exploring new job opportunities or beginning a new job. It’s important to remember to pack up your finances along with the personal items from your desk. You don’t want to leave assets behind unintentionally.
“Relocating” your finances is often a time-bound activity, as strict guidelines exist and tax penalties can come into play if you delay. To protect your assets and help you make the smartest moves for your situation, here are a few tips to consider.
Your Retirement Plan
For most people, a retirement plan is the largest asset connected to their employment. There are four key options to explore.
- Rollover – This is one of the best options since you retain control of where you move your retirement investments. You can avoid the 10% premature distribution penalty tax if you are under the age of 59-1/2 and you keep your money in a tax deferred account.
- Rollover to a self directed IRA: This option offers the maximum choices and investment options.
- Rollover to new employer’s plan, if available: The appeal of this choice varies based on the investment vehicles provided by the employer.
- Rollover to a Roth IRA: If the value of your retirement plan or Traditional IRA has recently declined, consider a conversion to a Roth IRA. You’ll have to pay the taxes now, but if the value increases, any earnings in the Roth account will accumulate tax free, and remain so for future qualified distributions if you follow the rules.
- Stay the course – You can keep money in your current plan if the plan allows this. It may not offer a variety of investments; for this reason, it’s a good idea to evaluate the plan thoroughly. This may be a good short-term choice while you get settled into your new job.
- Cash out – There are potentially huge tax consequences to consider with this choice. Proceeds are taxed as ordinary income and there can be a 10% penalty so be sure to consult a tax advisor. It is important to remember that if you sell out now, there is no chance to recoup any lost market value.
- Sick Leave Conversion — If you worked for a nonprofit organization that offered a 403b retirement plan, you may have a choice of converting unused sick leave, (subject to limitations) into money for retirement.
If you have a pension, research rollover options (if any) and compare what are referred to as pension-max opportunities. Re-evaluate your retirement timing and your needs for the long-term before making an irrevocable and quick election. Be sure to keep any plan information from jobs you held previously, to determine if you will be entitled to a pension.
Group Insurance (Life or Disability)
If insurability is an issue, you may be able to convert your group term life and/or disability insurance to a portable permanent policy. Look into this as early as possible, as there are time constraints.
Look carefully at your new employer’s health insurance plan, paying particular attention not only to your premium share but also to the maximum out-of-pocket and lifetime limits. You may be better off with your previous employer’s plan through COBRA. The US Department defines COBRA as the “Consolidated Omnibus Budget Reconciliation Act, which gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.” Between employers, you may either convert to a COBRA plan or purchase a direct pay health insurance policy promptly to avoid a waiting period or stipulations regarding pre-existing conditions. Be aware if you convert from group to individual health insurance your coverage may change and so will the premiums.
While you are in update mode, be sure to update primary and contingent beneficiary information on all policies and retirement accounts. Think of changing jobs as an opportunity to solidify your financial future, whatever your age or situation.
Updating your financial situation as you change jobs will help you make the most of your new position and continue to build your long-term security. For more information on transitioning employment benefits or finding a financial advisor, check out these resources:
Heidi Clute, CFP® of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm and registered investment advisor that provides strategic financial and investment planning for individuals and small businesses in the Champlain Valley region of New York and Vermont. Clute Wealth Management and LPL are separate entities. The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations. LPL Financial does not offer legal or tax advice.