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Checklist for Career Transitions

Carolyn Taylor, Founding Partner, President | Erik Nelson, Wealth Management Associate Advisor | July 12, 2018


Checklist for Career Transitions

Whether it be retirement, starting a business, being recruited to a new job or changing industries, nearly all working individuals experience a transition at some point in their careers. While new roles, responsibilities and workplace dynamics are major adjustments, career transitions also bring upon many financial considerations that deserve attention.

To help ensure that you stay on track with your long-term plan, we’ve created a checklist for career transitions to help you navigate through these times:

  • Insurance

    • Health Insurance
      According the United States Census, over half (55.7%) of the total population of United States have employer-based health insurance coverage. While you always have the option to get a private policy, the Consolidated Budget Reconciliation Act (COBRA) allows those in transition, as well as their spouses and beneficiaries, the provisional continuation of current health insurance if they meet qualifying events. These qualifying events each include their own maximum period of continuation that ranges from 18 to 36 months.
      It should be noted that in most all cases, the insured pays for the full COBRA health insurance premiums and the (former) employer does not split any of the cost.
    • Life/Disability Insurance
      Employers may also offer term life and/or disability policies that can help to supplement a major portion of your family’s coverage needs. Although employers will not continue to share the costs upon leaving employment, former employees may be able to maintain their current policies directly with the insurer of the policies.
      Changing jobs is a great time to not only assess the potential gap that has been created in your coverage but also reassess your total insurance needs as you explore new policies.
  • Retirement Plans (401k, 403b, 457, etc.)

    • Contributions
      Depending on the type of plan, the IRS specifies the maximum that can be contributed to your retirement plans every calendar year. If you will be retiring, moving to an employer without a retirement plan or expect no/lower income for the remainder of the year, maxing out your retirement plan contributions prior to leaving your current company takes advantage of the waning opportunity for a tax deduction and tax-deferred growth. Even if portfolio funds or savings are needed to meet expenses, deferring all, or at least enough of your paycheck to get the employer match, can be an effective strategy as you approach the end of your tenure with your current employer.
      It is important to note that the IRS contribution limit applies to aggregate calendar year contributions, not contributions per plan. If you do max out contributions before leaving an employer, be sure to not overcontribute if you participate in another plan in the same calendar year.
    • Rollovers
      In general, employer-sponsored retirement plans have been trending in the right direction in terms of fees, services and investment options but still commonly lack transparency and overall scope that can prevent participants from maximizing the growth of their retirement savings.
      Weatherly uses the service FeeX to review our client’s retirement plans to help illuminate the key factors in the plan centering around total fees, services and investment options. Completing this analysis not only provides greater transparency of those factors but to also help with the decision of whether to rollover old employer-sponsored retirement plans out of the plan and into an IRA.
    • Required Minimum Distributions (RMDs)
      If you continue to work past the age of 70 ½ and your plan allows for it, the assets in your retirement plan are most likely excluded in the calculation of your required minimum distribution under the working exception. Should you leave your employer, this exception goes away and these assets will now be included in that RMD calculation.
      This inclusion will increase the amount that the IRS requires you to withdraw from your IRA the next year which can lead to additional tax consequences. If you are working past 70 ½, it is important to understand this change so that proper tax planning can be considered.
  • Stock Plans/Deferred Compensation

    • Stock Plans
      Various types of stock plans such as Stock Options to Restricted Stock and Employee Stock Purchase Plans are common benefits that allow employees to purchase their company’s stock at a discounted rate. While this is an attractive benefit for current employees, it can create a difficult decision for those in transition.
      Traditionally, former employees have up to 90 days from termination to exercise any vested incentive or stock purchase While the specific number of days may vary, this time limit puts former employees in the situation where they are forced to decide whether to let vested shares expire worthless or realize potentially significant tax consequences. This decision will be unique to each individual’s situation but if your departure can be expected or planned, strategically exercising vested shares opportunistically in advance of this forced decision may allow you to mitigate your tax consequences without leaving money on the table.
    • Deferred Compensation
      Much of the same considerations relate to Deferred Compensation but the flexibility for these plans is commonly far less. Because Deferred Compensation Plans are essentially an agreement between you and your employer to pay income that you have earned at a later date, you are not able to disclaim these payments. This earned income must be paid out to you even if you prefer to rather not have to realize those as tax income.
      Depending on the specific plan, you may still have the flexibility to spread out these deferred compensation payments or in less common situations, be forced to take your full balance as a lump sum payment in a single tax year. Weatherly can strategically plan for these various scenarios to be most useful for our client’s respective situations.
  • Severance

    • Severances packages are commonly associated as an incentive for wrongfully dismissed employees to not bring suit against their former employer. However, those nearing voluntary transition may be able to leverage their situation into severance pay that can help to bridge the gap months during that transition.
      Employers may provide severance packages to long-time employees who are retiring as benefit to “reward” and recognize their loyalty and hard work. Alternatively, if you are aware that your company may be restructuring, your voluntary departure may be able to be arranged as a layoff that could command a severance package.

Career Transitions, regardless of their impetus, can bring challenges and complications. With this checklist and by leveraging Weatherly’s expertise, we seek to steady the waters and continue to create a Ripple Effect that can absorb your times of transition and maximize your specific situation.

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.