With a new year comes new opportunities. One of those opportunities could be a new job. With little research, it’s safe to say that most of us have changed employers throughout our careers. In January of 2018, the Bureau of Labor Statistics reported that employee tenure averaged 4.2 years. This was the same as the numbers reported in January of 2016. With every job change comes three decisions that may affect our financial plans. Here are three financial questions to answer when changing jobs.
1. How should you spend the money from an income increase?
Your new job may come with an increase of income, whether it’s your salary or potential bonus structure. WOOHOO!
With the increase, it’s a good idea to slice that new cash infusion into thirds. One-third going towards taxes. Another third going to lifestyle. And the final third earmarked for savings or debt reduction. Putting together a strategy for the money before you start spending is essential to gaining financial planning momentum and achieving your goals.
2. What should you do with previous retirement accounts?
You have four options for your previous employer’s retirement account:
- Keep your current account. You can keep it where it’s at and simply let it sit there. However, it may not be in the right funds for you and the holding company may ask you to move it.
- Roll your account over to your new company. If you had a 401K, you may be able to simply roll it into the new company’s 401K plan. Then both funds would be working together.
- Roll it into a traditional IRA. The rollover is tax free with more options for your investment strategy.
- Cash it in. You can cash it in, but you will be taxed on the amount and be penalized 10% if you are below 591/2 years-old.
3. Does your change in benefits affect your plan?
Along with financial compensation, you may receive additional benefits like life insurance and disability insurance. Stock options may even be on the table. All three of these impact financial planning and need to be considered when giving your dollars a job to do. Do you need to increase your coverage or pull it back based on your working benefits? Do you open a new investment account or put money towards one that’s established? There are a lot of options available to you. The key is to make decisions based on your goals and what you want your money to do.
Getting a new job can be equal-parts exciting and overwhelming. As you transition to a brand-new environment, a financial advisor could be key in helping ensure sure your money works for you in accomplishing your goals.
Special thanks to our Guest Blogger, Clint Brady, for sharing this information with us!
Clint is a financial advisor with Northwestern Mutual. He is an advocate for families and business owners on creating a path to financial independence.
Click here for a free, no obligation consultation with Clint.
Interested in learning more? Read more of Clint’s posts for Cedar Rapids Moms Blog: