Job Change Checklist
These days, changing jobs is a fairly commonplace. Chances are you will change jobs more than once in your career, if not several times. These job transitions can be a whirlwind, both exciting and daunting at the same time. It is a time of emotion, change in responsibilities, visibility, and decisions. Hopefully it is the job of your dreams or will make you happier or at least a bit better than your previous one. A job transition may present you with many financial choices and options. Putting your financial situation in order and being organized going forward will help you get off to a great start! Here are some tips to help you navigate the transition.
Carefully Read Your New Job Offer
Before you make the change, be sure to get your new offer in writing, with expression of the start dates, salary and compensation, title, and benefits. From your old employer, bring your performance review information and information to keep your resume up to date, including your dates of employment, your titles and accomplishments, and referral sources. Give your soon-to-be former employer sufficient notice of departure, review your contractual obligations. Settle with your former employer all severance issues, unused vacation and sick time. These items may cover a gap in income and make your transition easier financially.
Evaluate Your Current and Future Financial Situation
A change in income and expenses could impact your future financial goals.
- Review your living expenses and emergency funds to assure you have 3-6 months of savings to cover your expenses, particularly if you will have a gap in employment dates until the start of your new position.
- If relocating, update your addresses with all your personal financial affiliations. Determine who is paying for the relocation expenses up front. Consider that there may be a difference in living expenses and taxes for different locations. You might also need to consider the rent vs. buy option for your housing needs. If selling a home, keep all the records on the sale of the residence and the associated cost basis. Plan for the associated commuting expenses to your new job. Will you need a new car? Will you be taking public transportation? These can affect your living expenses.
- If you have stock options with your previous employer, affirm whether you need to exercise the options before you leave the company. Some companies require that you exercise the options after a certain amount of time or cash them out. Be aware of the taxable events that might be triggered by such actions. Determine the tax basis of the stock.
- Reassess your cash flow and budget to reflect your new paycheck, which will likely be different from your previous one. Evaluate if you need to revise your spending or plan your savings differently. Establish a budget and prioritize or re-prioritize your spending, saving and investment goals and objectives. Determine your future ability to contribute to your goals and the tax implications of the new position.
- Estimate your income taxes for this year and next, so you are mindful of how your circumstances may change and you can plan for it.
- Review your established banking and investment associations to assure they are in line with your new position and you are able to receive the advice needed.
Review Your New Salary and Compensation Package
Understanding your new salary and compensation package can help ensure your financial situation is in order and keep you organized from day one of your new job.
- Arrange for Direct Deposit of your paycheck to your bank account to assure that your wages arrive as quickly as possible and provides you with easy access. Be careful to understand the pay periods from your new employer and that you are aware of any gaps with your current automatic bill payments, withdrawals or transfers to assure they are in sync with your new payment schedule. You may need to adjust automatic bill payment dates. Arrange for auto contributions to savings accounts, pensions, and health savings accounts where appropriate.
- Analyze those new Stock Options. You might be offered stock options or restricted stock with your new employer. This is not unusual for many tech companies and start-ups. If in your new compensation package, you are going to receive Employee Stock Options (ESOs), know that you are being given the option to exercise stock options, meaning they are giving you the chance to buy stock in the company usually at a discounted price. Be aware that there are usually vesting periods, like a waiting period, for when you can actually purchase the stock, if you choose to. Carefully review the contracts and agreements to determine the dates and vesting schedule.
- Consider the 83(b) election for your stock options. The 83(b) election is a provision under the Internal Revenue Code (IRC) which gives an employee, or the startup founder, the option to pay taxes on the total fair market value of restricted stock at the time of granting. Assuming you paid nothing for your restricted stock, you will be taxed on the value of your restricted stock as determined at grant (if a Section 83(b) election is filed), or at vesting (if no Section 83(b) election is filed), in each case at the applicable ordinary income tax rate.
- If a bonus is part of your compensation package, consider when you will receive it, how it is determined, and how you will use that bonus. Will you save and invest it? If so, how will you invest it? Will it go to replenishing your emergency fund? Will you be using it for one-time purchases? Will you need to put it away for college expenses or child care? Will it have to last the whole year? Pre-planning for a bonus can help you achieve some of your financial goals.
- Filling out the W-4 form can be confusing. The W-4 form is where you tell the government how much money the company should take out of your paycheck and hold for tax purposes. While many people think that getting a refund from the IRS at tax time is a good thing, most people over withhold. Over withholding is essentially giving the government an interest free loan. Ideally, you should assess the amount withheld so that at tax time you have paid your taxes, but not overpaid.
- Review your investment strategy with your financial advisor and make updates if appropriate. Set up automatic contributions to investment accounts, giving consideration to your financial goals.
Understand Your Benefits
Be aware of your open enrollment time frames. These deadlines are usually very strict and must be met to receive your benefits. The benefit forms that must be filled out are time consuming and thought provoking, but can potentially affect your financial life and saving ability for the future. Pay careful attention to the designation of beneficiaries where available.
- Health Care
- Proactively manage your health insurance to avoid a lapse in coverage. Review and understand your new benefits to ascertain eligibility requirements, start dates, copay’s, coverage, deductibles and out-of-pocket expenses, as well as life time maximums. You might be offered health insurance as well as dental, vision and mental health coverage. Take the time to review and understand your options and the plans to be able to choose what is best for you, your spouse and your children.
- Disability Insurance
- Ask for details about your company’s disability policy. The most common types are short-term and long-term disability. Both are beneficial and provide income replacement if you are out of work. Short-term covers you if you are sick or injured and are unable to work for a short, specified period of time, often up to 6 months. You would usually receive a portion of your salary for that time. Long-term disability kicks in when the short-term policy ends, also offering a part of your salary with some sort of maximum benefit amount. You should understand how these policies work, and what type of disabilities or illnesses are covered. If it is not an option, you can consider purchasing the insurance on your own, to ensure protection for the unexpected.
- Life Insurance
- Review and assess your life insurance coverage offered from your new employer and compare it to other plans you may have. Make sure you have adequate coverage for your needs. Many company-offered policies limit you as to how much you can purchase, usually some factor times your salary. This is not always enough in many circumstances and may require you to seek additional policies.
- Consider Taking Advantage of any Pre-Tax Benefits
- Pre-tax benefits can affect your income tax situation, and may include retirement account contributions, health insurance premiums, Health Savings Account (HSA) contributions, Flexible Spending Account (FSA) contributions. FSAs can cover some health related expenses and childcare expenses. FSAs may require you to use them or lose them within a given time frame, and cannot be rolled over. Pre-planning on how you would use them and what expenses you can cover requires some forethought. You can only enroll in the FSA when you start a new job, during open enrollment, or if you have a life qualifying event, such as a marriage or a baby.
- Other Benefits
- Perhaps there are other non-salary benefits that you may receive that warrant consideration. Evaluate the relevance to you and their potential impact on your life, such as gym memberships, paternity or maternity leave, tuition reimbursement, commuting expenses. These types of benefits could enhance your life financially as well.
Consider Your Retirement Account Options
- Retirement Accounts with Your Old Employer
- Once you leave a job, you and your former employer stop contributing to your retirement account with that firm, and you will likely have options for how to keep those funds. You may be able to move the account from one employer to another, keep it where it is, or simply roll it over into a traditional IRA or a Roth IRA. Choosing a direct rollover option, which is when your 401(k) provider sends the account funds directly to your IRA provider, alleviates the possibility of forgetting to deposit the cash into your IRA within the set time frame guidelines from the IRA and incurring penalties. Review the options for making the various moves, as some may generate penalties and taxable events. Taking the plan in cash before you are eligible may result in an additional tax and could push you into a higher tax bracket.
- Consider your choices carefully by keeping in mind the flexibility of investment options and allocations, fees, expenses, distribution requirements, and tax treatment.
- Retirement Accounts with Your New Employer
- Understand your new employment retirement plans and options. Does it offer an employer match or profit sharing? What are the investment options available as well as the associated expenses? Employer matches for retirement plans can help grow your retirement plan at a quicker rate. Some employer matches have a vesting schedule. Make sure you are saving enough to get the maximum employer match. If the company automatically enrolls you in the plan, adjust your contributions so that you are saving as much as you can to get the benefits.
Other Logistics to Consider
- Update your employment contact and address information with those who should know. Inform your family, bank, financial advisor, accountant, legal counsel of your new situation.
- Make sure your former employer has updated contact and address information if you have relocated.
- Bring the requisite identification to your first day of your new job.
- Provide new benefit information to your financial advisor.
- Analyze investment options for your retirement and investment options, adjusting asset allocations if warranted.
- Keep an eye on all dates for enrollment of benefits and re-investment options.
- Update your beneficiaries on your important documents and accounts (401k, pensions, IRAs).
What an exciting time! Let’s keep it that way. Changing jobs can lead to great satisfaction in your life in so many ways. Keep yourself organized and follow this financial checklist to skillfully embrace the financial impact that a job change can trigger. Working with a financial planner can help you navigate the financial complexity of a job transition. As always, we’re here to help you through all of life’s big transitions – please don’t hesitate to contact us!