There's a lot to remember, but Schwab can help make sure your job change goes smoothly.
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Changing jobs can be both exciting and scary. You may be feeling stressed over all the things you need to consider while making sure nothing falls through the cracks.
Schwab is here to help you make a smooth job transition to ensure you’re on sound financial footing as you start a new job. With a wide variety of investment options and a highly qualified team of Financial Consultants nationwide, we can provide comprehensive investment help and personalized guidance in a way that’s right for you.
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People often ask themselves what to do with a 401(k) when changing jobs. One option is to simply keep your old retirement plan with your former employer. You also have the option to "roll over" or move the assets to another account that better suits your goals and needs. You can accomplish this through a rollover IRA or Roth IRA at an independent investment firm, such as Schwab, or you may be able to transfer assets to your new employer's plan. And although it is not typically recommended, you also have the option to take a cash distribution, but it may carry penalties and tax consequences.
Before you make a decision, be sure to understand the benefits and limitations of your available options. Also, consider factors such as investment-related expenses, plan or account fees, available investment options, distribution options, legal and creditor protections, loan provisions, and tax treatment.
It may sound like a lot—especially when you are considering or are already in the middle of a job change—but with some research (or the help of a Schwab Financial Consultant), you can identify the best options available to you and make a smart decision.
Regardless of the type of stock, you should review your grant agreement or consult with your employer regarding terms and conditions of the award. There are different restrictions and liabilities depending on the type of equity award you have.
Under most circumstances, there is an opportunity to exercise vested stock options after your end date with your employer. However, this depends on the terms of your award. We recommend you understand the impact on your finances before you make any decisions.
Additionally, proceeds from the sale of your shares could be subject to capital gains tax, and tax implications of equity awards are complex and vary by state, local jurisdiction, and country. You should consult financial and tax advisors before you exercise your options or sell stock.
Although Schwab is not permitted to interpret grant agreements or plan documents, and no one can predict the performance of your former employer’s stock, a Financial Consultant can help you understand how your equity award fits into your overall financial picture.
Before you leave your current job:
Find out when your insurance coverage ends. Know how long you’ll have insurance coverage (health, disability, and life) with your soon-to-be former employer. If health coverage ends before it starts up again with your new company, be sure to talk to your employer about your options through COBRA. Although COBRA may be pricey, consider the trade-offs if you were to need medical care during your transition time. Also check out coverage options through federal and state exchanges at healthcare.gov.
Identify any benefits that will follow you. Some benefits—like a health savings plan—will follow you wherever you go, so be sure you know which benefits will come with you and how to continue to access them once you leave.
Calculate pay that’s due to you when you leave. Understand how much unused vacation pay, sick pay, and other compensation should be paid out to you upon leaving. If you have stock options, make sure you know how long you have to exercise them before they expire.
Decide what you’re going to do with your 401(k). Know the pros and cons of leaving the money in your current 401(k) plan versus rolling it over into an IRA or into your new company’s 401(k). Then, decide which option is best for you. Get more information on 401(k) options here.
Create a budget for your time between paychecks. Develop a budget that will cover your expenses while you’re not receiving a paycheck between jobs. Your goal should be to get by with the money you have rather than going into debt to cover essential purchases.
When you’re between jobs:
Stick to your budget. When you don’t have a paycheck coming in, the last thing you want to do is run up debt (if you can possibly avoid it). Do your best to stick to the budget you’ve laid out for yourself while between jobs, even if it means cutting back on fun. In the long run, you’ll be glad you did.
If you’re planning to roll your 401(k) over into an IRA, get the process started. Contact your new plan administrator to set up an IRA account (if you don’t already have one) and begin the rollover. Remember that if your old plan administrator cuts you a check with the proceeds from your 401(k) plan, you only have 60 days to deposit it into your rollover IRA to avoid substantial taxes and early withdrawal penalties. If you decide a rollover is right for you, we’re here to help. Call a Rollover Consultant at 866-855-5636.
After you start a new job:
Review and sign up for benefits at your new job. Sign up for benefits as soon as possible to make sure you and your family are covered by insurance. Remember that small benefits, like commuter savings, flexible spending accounts (FSAs), and health savings accounts (HSAs) add up, too.
Set up your 401(k). If your new employer offers a 401(k) plan, sign up as soon as you are eligible. A 401(k) is one of the best ways to save for retirement. 401(k) contributions can be pre-tax or post tax (Roth). If there’s an employer match, be sure you contribute at least enough to take full advantage of it—that’s essentially free money. If your employer does not offer a retirement plan, consider opening an IRA and allocate a portion of your pay every pay period to ensure you stay on track for retirement. Use our retirement calculator if you need help figuring out how much to set aside in your 401(k) or IRA for retirement.
Estimate your tax liabilities. A change in salary can potentially affect your tax bracket, so be sure you understand what your new tax liabilities may be. Use the IRS Withholding Calculator to determine how much you should set aside for taxes; then, change your tax withholding amounts on your W-4 form if necessary.
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