One of the greatest joys in aiding clients with their financial plans is helping them design the kind of lives they want to live. So many people have simply gone through the motions and work at jobs that they not only find unfulfilling but also that don’t support the kind of life they want to lead. With the workforce changing and the way we “office” and interact at work evolving – lots of clients are finding themselves in a new position, a different organization or even an early retirement. With job changes not only are there different responsibilities and co-workers; there are also a slew of other changes that affect your complete financial picture. When making any kind of big life change or transition there are some good things to keep in mind.
Most employers offer a wide range of benefits including retirement plans. It’s common for today’s organizations to have a 401(k) program. There are several things to consider when you find yourself at a new desk and at the meeting table with HR.
If one of your goals is to max out your 401(k) contribution each year and you make a job switch during the year, you’ll need to be cautious and not over-contribute to your plan. For 2022 the maximum employee contribution is $20,500. Your overall contribution limit (employee and employer contributions) for 2022 can’t exceed $61,000 or $67,500 for workers 50 or older which includes catch-up contributions. Over-contributing can lead to lots of paperwork and headaches come tax time, it’s best to avoid that situation entirely.
You will also need to pick a new investment option for your plan. Most plans have either default pre-built options based on your projected retirement age, or you can choose your own from their list of investments. It’s wise to look at this plan in relation to your entire portfolio and evaluate how it best aligns with your financial goals and retirement plan.
And don’t forget to rollover any of your old plans. Consolidating your previous employer’s plan either into your new company plan or with your independent advisor is a good idea when changing jobs. That way you don’t have to one day go back and try to merge them all years after you’ve left.
A new job or position often means a new salary. A change in your compensation can influence your financial life in various ways. If you receive a significant bump in pay, you’ll want to review your W4 tax withholdings and make any necessary adjustments. You don’t want your new salary to come with a new tax liability come April.
Salaries not only consist of base pay, but some compensation packages can also include stock options, incentive pay, or quarterly/yearly bonuses. With stock options, there’s a variety of tax consequences that come with them. And some types of stock options receive preferential tax treatment. You want to be sure to discuss your new pay package with your financial advisor so they can help you avoid any surprises.
Whenever you receive a bump in your pay, it’s always a good time to reassess your savings and debt payoff contributions. Increasing your savings or speeding up the payoff of debt is something to consider for your long-term retirement goals.
Life insurance is often offered through a group policy with most employers. It’s important to look at what your employer can offer and if you need to consider obtaining your own policy outside of the convenience of a payroll deduction. You don’t want to find yourself in a situation where you are under or over-covered. Paying for too much coverage or paying more for the same coverage is something you want to try and avoid.
Changing employers or even receiving a promotion can mean that your health insurance coverage changes. When enrolling in a new plan there are a few things to consider from a tax-smart financial planning perspective. If you choose a plan with a Health Savings Account (HSA) and were previously covered under a plan that was not a High Deductible Health Plan (HDHP), you could potentially max out the HSA even if you’re only covered for a few months. For 2022, the maximum contribution is $3,650 for individuals and $7,300 for families. If you are 55, you can increase your HSA contributions. The IRS allows a catch-up contribution of $1,000 to cover rising healthcare costs.
And before you leave your old employer, you’ll want to make sure you spend any FSA funds on qualified healthcare expenses before you leave. Any funds you leave in an employer FSA are forfeited.
Finances touch so many different aspects of our lives. And it’s important that when we experience changes that we reflect on our financial plans and make any necessary shifts. Designing your work life so that it fits into your lifestyle is something that is becoming increasingly more important. We care about how we spend our time, and who we spend it with. We want to make sure that at the end of the day you don’t risk missing your greatest reward.