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The Most Important Money Moves For Starting a New Job

The Most Important Money Moves For Starting a New Job

The fact that looking for work takes a lot of work as well is not an easy thing to do. That’s why you need to make key financial moves related to the new job according to experts all new hires and to someone who’s been in the workforce for decades should do too. 

Take your old 401(k) with you since it’s yours

For you to save on 401(k) administration fees, simplify your finances, and to expand your investment options, you need to consider rolling over your old 401(k) or 403(b) into an IRA when you leave a job. It’s never too late to consolidate your accounts and regain control over your investments even if you left your previous job years ago.  

Rolling your old 401(k) or 403(b) into an IRA (also called an IRA rollover) is one of the two different options you have for managing your old retirement plan. You will be allowed to continue to have a tax-deferred growth on your account by rolling your old retirement plan into an IRA. You can have the funds rolled into an IRA you’ve already opened or you can open a new IRA at an institution of your choosing. You will have an assurance that nothing will be forgotten if you only manage fewer accounts. To help preserve the unlimited creditor protection of the ERISA-Qualified plan the size-able accounts originated from, you can consider rolling the funds into a new rollover IRA. 

Into a Roth IRA, convert your old 401(k) or 403(b). You will owe income tax on the funds you convert in the year of conversion when you convert all or a portion of pre-tax retirement money to a Roth IRA. The money can be withdrawn tax-free in retirement and grow tax-deferred (provided that the applicable holding period and age requirements have been met) like a regular Roth IRA. There are no income limitations on annual Roth conversions, unlike a regular Roth IRA. You should consult your financial and tax advisor before moving ahead because there are a number of other benefits and considerations to this strategy. 

Options for your old stock options

There are several potential outcomes for your stock options if you’re leaving a job. 

Below are some of the key factors:

  • The type of equity compensation you have (restricted stock units, stock options,  employee stock purchase plan, etc.)
  • Vested and exercised shares
  • Public or Private employer
  • The reason behind why you’re leaving your job (e.g. terminated with or without cause, was laid off, or took a new job)

You will generally be able to exercise your shares up to 90 days after your last day with your previous employer if you have an incentive stock option (ISOs). Though the “qualified” status and the potentially favorable tax treatment of the stock plans will be lost, it will allow for a longer period after separation. You need to review the terms outlined in your old employer’s equity plan if you have a non-qualified stock and this option may be more flexible. 

You should consider working with a financial advisor and employment attorney to fully understand the implication of taking a new job ideally before accepting a new opportunity due to the company-specific and individualized nature of employment agreement and equity incentive plans and don’t forget to include what can happen to stock options. 

Don’t skip the setup on your new retirement plan

You should keep in mind the often-overlooked considerations when you establish your new 401(k) or 403(b) retirement plan at work:

Your contributions made at your last job must be included in the maximum funding for the current calendar year. You need to make sure you don’t inadvertently over-contribute to your new retirement plan if you start a new job during the year. The limit given by the IRS is not applied per plan but per individual, and it is up to you as an employee to track it. For individuals under the age of 50 in 2020, the contribution limit id $19,500 plus a $6,500 catch-up contribution if the age is 50+. 

You should not ignore the beneficiary designations. Your belief is wrong if you assume that your spouse or family members will automatically benefit your retirement plan. Your account will go through the expensive probate process where it might eventually go to the individuals you intended but that’s unless you name beneficiaries. Failing to set your beneficiary designations properly can actually undermine your estate plan so you have to make sure your beneficiary designations are consistent with your estate planning strategy. 

You should understand how your new 401(k) match works. Make sure you know how your new employer’s match works to avoid leaving money on the table before you set your contribution strategy. 

Financially and professionally, starting a new job can be exciting and rewarding. You should recall the main reasons why you go to work every day as you adjust to your new responsibilities. Reorganizing your finances is the best thing to do during a job transition. 

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