Changing Employers? Some Financial Planning Thoughts to Consider

By Bradley Miller

Over the past couple of years, we have seen substantial job turnover ever since COVID changed the entire job landscape globally. More employees have begun changing jobs or even deciding to retire early or resign and figure out work at a later date. This had led employees to finding remote work and has removed the need to live where your employer is located in some instances.

Employees have had the chance to reconsider what is important to them. Is traveling important to you? Then perhaps a remote job is a good fit. A higher salary isn’t the end all be all as money doesn’t buy happiness. You should do everything you can to vet the new job to ensure it fits a role that you like. Will you feel fulfilled in your work?

One important item to consider when potentially changing jobs are the fringe benefits that you will have access to or potentially lose if you make the job change. If you are considering changing jobs, here are some financial planning thoughts to keep in mind before making the change:

Health Insurance

Company paid health insurance is a huge benefit to keep in mind when looking around for a new job. If your new company does not have health insurance then you will at least have access to COBRA to keep your existing health insurance coverage intact for up to 18 -36 months (depending on where you live), however you will have to pay the full premiums now. Once the COBRA coverage expires, you will have to look into the individual marketplace to purchase a plan to ensure you have health insurance coverage which can be costly. If you have a spouse, then you should inquire about your spouse’s health insurance coverage to see the cost of adding yourself to their health insurance plan. They can then reach out to their H.R. department to potentially add you to their plan.

Life Insurance

If you only have employer paid life insurance when you go to change jobs, you may lose the life insurance policy all together. Generally speaking, we recommend purchasing term life insurance outside of your employer through an independent life insurance agent as this policy will stay with you regardless of any job change.

Your employer provided life insurance policy may offer portability where you can outright purchase the life insurance policy, but this may not be the most affordable option. If you pursue purchasing term life insurance on your own, then you will be rated at your current age and health at the time of your application. This is another reason why we recommend locking in your own term life policy ahead of time as opposed to through an employer.

Rolling over your Employer Plan

If your prior job had an employer plan that you and/or the employer contributed to – you will have several options to choose from with how to handle your account when you change jobs.

Option 1 – You can leave the employer plan where it is at if the employer allows it. Most often, employer plans do not have a large investment universe to choose from so you will have limited choices in what to invest in. Also, you will no longer receive any employer match since you don’t work there, and you also won’t be able to make any direct employee contributions out of your paycheck which may impact the tax benefits of receiving a deduction. This limits the appeal of this option and we generally would not recommend this path.

Option 2 – You can open up an IRA (or Roth IRA depending on the tax classification of your employer plan) and roll over the funds to this account in your name. This will allow you to pick and choose the investments that you would to invest in which has a huge benefit. Most employer plans are limited in their investment choices and may have costly funds to choose from but you have no other choice. By rolling it out of the employer plan account, you may be able to save money as most employer plans charge an administrative fee and/or recordkeeping fee. This option is often the most appealing as you will be in control of the investments and potentially be able to save yourself money over the long term.

Option 3 – Depending on the new employer and plan type, you may be able to roll your old employer plan into your new employer plan. We generally do not recommend for clients to do this, as stated above, employer plans have additional costs to them. We would recommend rolling over the prior plan into an IRA (or Roth) in your name. Most employer plans have limited investment choices as mentioned above. You should however go ahead and establish a new employer plan with the new company. Ask if they have a match and be sure to contribute at least up to the employer match if you have the means to do so. You will then have a new employer plan in addition to an IRA (and/or Roth IRA) in your name.