The Great Resignation is upon us. If you’re one of millions of Americans looking to change jobs, here’s what you need to know so you don’t end up leaving money on the table.
The Great Resignation kicked off in spring 2021 when Americans began quitting their jobs en masse. Since then, roughly 33 million workers have left their employers.1 Some are older employees retiring early after strong markets boosted their retirement savings. Others were parents forced to stay home to care for children when schools closed during the COVID pandemic. And many are workers simply hoping to take advantage of a hot labor market that favors job seekers.
A job switch means making important decisions about your retirement plans, compensation plans and health coverage to avoid incurring penalties or leaving money on the table. Ideally, workers should take a look at these issues before making the big career move to make sure they have an accurate sense of what they’re gaining or losing from the decision.
If you’re one of the millions looking for a new job, here are some key things to keep in mind.
1. Roll Over Your Retirement Plan
If you have an employer-sponsored retirement plan – such as a traditional 401(k), SEP IRA or SIMPLE IRA – you have a couple of options when you switch jobs. In some cases, you may be able to leave your account with your former employer. However, that may make it more difficult to keep track of and stay on top of any changes to the plan. For example, you may not be alerted to new investment options in the plan, or if your former employers switch providers, it may be hard to access your account.
Instead, consider rolling your funds into another plan, such as your new employer’s plan or a traditional individual retirement account (IRA). These rollovers won’t trigger any taxes or penalties, and will preserve the tax-advantaged status of your retirement savings.
The easiest way to move your money is through a direct rollover, where you request your former employer’s plan directly transfer your account funds into your new employer plan or IRA. An alternative is to have your former employer’s plan cut you a check that you can deposit yourself into your new account. Bear in mind that you must deposit that money within 60 days or you’ll owe taxes and penalties.
You also may decide to move the savings from your former employer’s plan into a Roth IRA. Be aware that doing so will mean paying taxes on the entire rollover amount because Roth IRAs are funded with after-tax dollars. The good news? Your withdrawals will be tax free once you’re in retirement. What’s more, you can withdraw Roth contributions at any time tax and penalty-free, which helps provide you with flexibility.
2. Consider the Compensation Package
If you’re currently entertaining a job offer, make sure you’re comparing the total value of both your current and your prospective employer’s compensation packages. Besides your salary or hourly wage, look at benefits like paid time off, bonuses and equity compensation. If the new job’s compensation doesn’t measure up, you can leverage your current compensation – including equity or options that haven’t yet vested – in salary negotiations with a potential new employer.
If your old employer offered you stock options or 401(k) employer matching contributions, be sure you understand your vesting schedule. It may be worth staying with your employer a little bit longer if you can take advantage of options or matching funds that are vesting soon.
Before leaving your job with unexercised stock options, consult your plan agreement to see whether your career move changes your options’ expiration date. Many plans require you to exercise vested options within 90 days of leaving your employer.
3. Prepare for a Gap in Health Coverage
A job change can have the unfortunate consequence of leaving you or your family temporarily without health coverage. Check to see when coverage under your old employer ends and when coverage under your new employer begins. If there are any gaps in coverage, you may be able to join a spouse’s employer plan, pay for COBRA coverage, or shop around for a short-term health insurance plan. The costs of these options and the coverage they provide can vary widely, so compare plans in detail to make an informed decision.
Amid historically low unemployment, it’s definitely a job-seeker’s market. But while it’s tempting to jump to a new job, make sure you don’t inadvertently – and unnecessarily – forgo money and benefits. A Financial Advisor can help you understand how a job change or changes to your benefits package will affect your financial plan.
The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.