It’s no secret that it’s a job seeker’s market right now. As companies continue to search high and low in the race for talent, employees may feel overwhelmed about whether to change jobs – particularly when it comes to how it’ll impact them financially.
While a new base salary can be enticing, it is important to evaluate a new compensation package holistically in order to best weigh your options. Considering factors like insurance, retirement plans and stock options can be critical to your long-term financial health.
Here are five things you should consider financially when deciding whether you want to change jobs:
1. Have a plan for your former 401(k)
When you leave a job, there are four options for your 401(k) or similar retirement savings plan. You can leave the money where it is, cash it out, transfer the funds into a new retirement plan, or roll it into an IRA. Understanding the implications of each of those options is crucial.
Withdrawing retirement funds under the age of 59½ comes with a 10% penalty, and any tax-deferred distribution is taxed as ordinary income on top of that. It is better to keep the funds in a retirement account to benefit from the tax-deferred growth and compounded accumulation over time. Leaving the money in the plan is a better alternative than taking it out. However, we often recommend consolidating when you can.
We typically advise clients to transfer the funds into their new retirement plan or roll them into an IRA. Having fewer accounts will help you keep track of what you have saved. If you like your new company’s 401(k) investment options, transferring the funds there may be the best option. It also leaves the opportunity for a more straightforward backdoor Roth IRA conversion.
2. Look at the fine details of the offered insurance plans
Health insurance, dental and vision can be complicated, and they can differ vastly from employer to employer. Before you decide to accept a job offer, be sure to learn the details of the insurance plan you are being offered. If you are leaving a big company for a smaller one, confirm first whether or not they offer health insurance. Under the Affordable Care Act, employers with fewer than 50 employees are not required to provide health insurance. If your potential employer doesn’t offer insurance, now is the time to evaluate what private options you may have.
Once you know if the company provides insurance, it’s important to understand what you are responsible for paying in terms of premiums and deductibles, and to determine if treatments you may need are covered. For example, if you see a therapist, check to see if mental health services are covered under the policy. The same would apply for other medical needs, such as infertility treatments or acupuncture. If some of your priorities aren’t covered, can you cover the costs with your new salary? Determining this prior to accepting an offer will help you better plan financially for the future and weigh the overall financial impact of taking the job.
3. Know the rules of the road associated with your stock ownership
Offering equity as part of a compensation package has become increasingly common. How should you factor an equity offer into your decision? First, familiarize yourself with the basic rules around the equity offer. What type of stock is being offered— a Restricted Stock Unit (RSU), Performance Shares, Incentive Stock Option (ISO) or Non-Qualified Stock Option (NSO)? Each of these has different tax implications. From there, make sure you read the fine print of the vesting schedule, payout rules and blackout periods, if applicable. And if you leave the company, it’s good to understand if you will be leaving equity on the table, or if you will have the ability to purchase your options. In some instances, your company may be willing to work with you on purchasing shares.
4. Account for all benefits, no matter how small
Do you currently put away money in a health savings account (HSA) or a flexible spending account (FSA)? In an HSA, the money is yours, and any amount not spent can be used in the future. However, if you have multiple HSAs it’s easy to lose track of what you have saved. Like your retirement, it may be better to consolidate and roll prior HSA funds into your new HSA plan, if you have one. Be sure to consider and compare fees of the old plan vs. the new.
With an FSA, if you fail to spend down the account before switching jobs, you lose that money. Make it a priority to spend those funds before you leave.
Think through your current day-to-day activities. How much will your new company contribute to your gym membership? Will you receive a stipend for your commute and transportation? Is lunch provided, or will you have to factor that into your budget? Thinking beyond true finances will help you plan holistically ahead of starting a new job.
5. Treat yourself
Getting a new job is something worth celebrating. Especially if your new gig comes with a signing bonus or a large salary increase, don’t be afraid to treat yourself. That could include a vacation, a special purchase or something else you have been looking forward to.
A new job is a big life decision that can often feel overwhelming. But thorough consideration of how your finances will change under new employment and weighing your options holistically will ultimately result in an easier transition in the event you decide to make the leap.
Senior Private Wealth Adviser, SVB Private
Julia Vanzler, CFP® CPWA® specializes in working with individuals and families to manage and protect their assets. She is committed to delivering individualized, fully integrated financial solutions that aim to solve personal challenges and provide security and peace of mind. As a senior private wealth adviser at SVB Private, Julia works closely with her colleagues and her clients’ external advisers to provide thoughtful advice and guidance on investments, retirement income, philanthropic, estate and tax planning.