FIRST MIDWEST FINANCIAL NETWORK - JOB TRANSITION PLANNING
There are many important financial considerations when moving through a job transition. As you negotiate compensation issues and navigate the impact on your family, don’t forget to pay attention to the disposition of your 401(k) assets. Your First Midwest Financial Network consultant can help you determine your 401(k) options.1
We’ll also review your life insurance and disability plans to make sure your coverage is complete and up-to-date, as well as help you update beneficiaries, if necessary, under your existing policies.
Continue Building Assets Throughout a Job Transition
When considering a new job or career change, you’ll need to take a hard look at how this will affect your personal finances. Some things to think about and compare, beyond basic salary differences, include:
- Changes in commuting costs and time.
- Differences in flextime and telecommuting policies.
- Comparing benefit packages offered by your current and prospective employers.
- Differences in retirement savings plans, especially employer 401(k) matching.
- If either company has a pension plan, compare vesting requirements.
- Opportunities for career advancement and Job security.
If you change employers, discuss the below options with your financial consultant:
- If permitted, leave the money in your former employer’s plan
- If an employer 401(k) plan is available, roll over the assets to your new employer’s plan (if permitted), if one is available and rollovers are permitted
- Roll over to an IRA
- Cash out the account value
There are specific rules you need to follow with each of these options to avoid losing a significant portion of your nest egg to taxes and penalties.2 Your Financial Consultant can discuss all your options in detail, and help you navigate this often complicated transaction.
While you‘re employed, it may be wise to consider ways you can prepare yourself financially for the possibility of job loss, especially if you sense layoffs may be coming. In a worst-case scenario, advance planning may help cushion the blow. And if your job remains safe, you may have adopted better spending and saving habits in the process.
- Attempt to put aside at least three months’ worth of living expenses.
- Pay down household debt and avoid incurring any new debt.
- Cut back on your discretionary spending and defer major purchases.
- Consider applying for a home equity line of credit while you are still employed. Do not draw on it so you have access to it in case you need it, and the interest rate will likely be lower than most credit cards.
- Make dental and medical appointments while you still have coverage.
- Take advantage of benefits such as state unemployment assistance, employer-provided outplacement services, and financial counseling.
- If you get severance pay, try to set aside at least 35 percent for income taxes2.
- Apply for public assistance, such as food stamps, if eligible.
- Communicate with your creditors to explain your job loss and request reduced payments or an extension to pay bills.
- Maintain your health insurance coverage through COBRA if that option is available (ask your human resources representative for details).
- Try not to cash in tax-deferred retirement plan assets to pay living expenses, to avoid taxes and penalties2. As a last resort, withdraw only what is truly needed.
- Talk to your mortgage lender. You may be able to arrange a forbearance agreement that enables you to reduce your payments for a set period of time.
- Consider working with a nonprofit credit counseling agency that can negotiate with creditors on your behalf.
- Expenses related to your job-search may be tax-deductible2, so be sure to keep careful records and file your receipts. Qualified expenses can include travel to interviews, meals and lodging, phone calls and faxes, postage, photocopies and printing, and fees charged by employment agencies.
