Managing job changes

The workplace has been undergoing changes for quite some time. The days of employees spending decades at one company is no longer the norm; employee tenure for most workers now average about four years.1 It’s no secret that the pandemic has dramatically shifted our perception about our jobs, our working environment, and increased our focus on remote work. If you’re facing a layoff, being furloughed, or starting a new job, here are some steps you can take to ensure a smooth transition.

Take care of your financial needs

What should you do with your 401(k)?

Hopefully, you have been contributing to your 401(k) at work and maximizing your retirement savings by participating in your company-matching program if it’s offered. If you’re getting laid off or leaving your current job, you’ll want to consider whether to:

• Leave your 401(k) balance where it is
• Roll over the funds to an individual retirement account (IRA)
• Roll over your 401(k) to your new employer’s 401(k) plan, if available

There are pros and cons to all three choices, so it’s important to carefully consider all the benefits and limitations, especially if you have a traditional 401(k), Roth 401(k), or both. For example, if you decide to leave your 401(k) with your old employer, you won’t be able to contribute to your 401(k) anymore and you’ll need to find another way to continue saving for retirement. But you should still have the option to transfer or roll over your funds in the future, if you decide to do that.

If you decide to roll over your 401(k) to an IRA, you have many options to choose from. You can consider a traditional IRA or a Roth IRA, depending on your income level. Before you decide, check out the available investment and distribution options, fees and expenses, and features and services that are offered. Do you have more investment choices? Often, it’s easier to track your retirement savings if you consolidate your funds into one account. If you are thinking of rolling over your old 401(k) to your new employer’s 401(k) plan, you will want to find out if your new company offers a company match. The most important takeaway is that you keep saving for retirement in whatever method makes sense for you. Here are four tips on how to make the most of your retirement contributions, whether you’re using a traditional or Roth 401(k) or an IRA tips to save for retirement.

Do you have stock options or grants? Unpaid time off?

Before your last day at work, make sure you review your stock grant or option agreements. Jot down your account login and passwords for your retirement plan, healthcare, and other relevant accounts; make note of company contacts, such as like HR, stock administrator, etc. Depending on the type of stock you have, you may be subject to capital gains tax and other taxes if you choose to exercise your options or sell stock, so we encourage you to reach out to your financial advisor beforehand.

If you have stock options or grants that you don’t need for immediate funds, or concentrated positions in your employer’s stock, you can also think about using your stock for good.

Also, make sure you calculate how much unused vacation or sick pay as well as bonuses and commissions you have remaining so that you understand what’s being paid out to you before you leave. It’s much easier to resolve these kinds of issues while you’re still working and in the “system,” as opposed to after you leave. And don’t be shy about discussing what types of benefits may be available to you if your job is eliminated or you’re laid off. Many companies are willing to negotiate severance packages in exchange for a release of future claims. Typical severance packages can include:

• Severance benefits: A standard calculation might be one week’s worth of pay for every year of service to the company.
• Acceleration and pay out of annual bonus or incentive compensation: It may not be unreasonable to ask for a prorated amount of any annual or quarterly bonus amounts that you may have earned but have not yet been paid.
• Extended benefits coverage: Some companies may be willing to provide payment of insurance coverage for a certain time period, post-termination.
• Outplacement services: Some employers have relationships with companies that can provide job search benefits to help you with resume writing, career coaching, and help with searching for your next position.
• A reference letter: While some companies have policies against this, it doesn’t hurt to ask if your manager is willing to write a letter of recommendation that you can provide to potential future employers.

File for unemployment benefits

If you lost your job through no fault of your own (like a layoff) and you meet your state’s wage and work requirements, you can file for unemployment benefits. Check your state’s website for more information; you can also find your state’s site through the U.S. Department of Labor website.

Create a budget (if you don’t already have one)

There is no time like the present to track where your money is going. If you’re dealing with a job loss, your job has been furloughed, or your work hours have been reduced, having a good idea about where your money goes can help you manage your expenses and offer peace of mind. As a rule of thumb, we advise having an emergency fund so that you can cover your monthly expenses for 2-6 months, depending on your situation.

Do you need a new W-4?

If you’re starting a new job and you’re getting a bump in salary, it’s worthwhile checking if your pay raise has put you into a new income threshold. You can use the IRS Withholding calculator to find out if you’ll need to complete a new W-4 form.

Maintain your healthcare needs

Do you have healthcare coverage?

If you get laid off, your hours get reduced so that you lose coverage under your company’s health care plan (for instance, you go from full-time work to part-time work), you retire, or you quit your job, you may get offered Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits, which is essentially coverage in your employer’s plan. Companies that have more than 20 employers are required to offer COBRA and you may be qualified to receive COBRA benefits for up to 18 months. You have 60 days from the day you’re notified or from the date your healthcare coverage ended to enroll. Generally, COBRA benefits can be quite costly, as it requires you to pay the entire monthly premium, including the part your employer paid when you were working.

If you don’t want to take COBRA coverage, you can shop for new insurance coverage under the Affordable Care Act through your state’s health marketplace or at www.healthcare.gov. Losing your job qualifies as an event under the “special enrollment period,” entitling you to sign up for new coverage. You may qualify for premium subsidies based on your income and household size. Individuals with low income may also be eligible for health benefits under Medicaid.

If you’re married, you can sign up for your spouse’s healthcare plan. Don’t forget that children under age 26 are also eligible for coverage under a parent’s plan.

The key takeaway? Don’t delay. You have a narrow timeframe to get new coverage in place. You need to maintain continuous health coverage, especially given the ongoing health crisis from COVID-19. Health insurance also protects you from potentially catastrophic medical bills.

Do you have a Health Savings Account (HSA)?

HSAs let you use pre-taxed dollars to pay for current or future healthcare expenses. Any balance remaining in your HSA at the end of the year rolls over to the following year, so you don’t lose it if you don’t use it. HSAs are not tied to your employer so you can take it with you even if you are laid off, furloughed, or quit your job. You also don’t pay tax on withdrawals if you use the funds for eligible expenses like deductibles, copays, coinsurance, and other qualified medical expenses not covered by your medical plan. Once you enroll in Medicare, you can’t make HSA contributions, but you can continue to use the HSA balance for Medicare deductibles, prescription drugs, dental expenses, and other medical costs in retirement.

If your new employer offers HSAs and it’s better than the one you have or you want to consolidate your funds into one account, you may be able to roll over the money. There are some caveats:

• You can only do a rollover once per one-year period. So, if you initiate a rollover on August 15 this year, you have until August 15, 2021 to complete the rollover. You can get around this “one rollover per year” rule if you establish a trustee-to-trustee transfer, meaning you have your current HSA administrator transfer the funds directly to your new HSA trustee. There is no limit to these kinds of transfers as they are not considered rollovers.
• Once you start the rollover process, you have 60 days to deposit the money into your new HSA; otherwise, you risk getting taxed on the funds (similar to what happens with 401(k) or IRA withdrawals).

Since HSA plans allow you to invest your contributions (via mutual funds), you can grow your balance on a pre-tax basis. HSA’s triple-tax advantage can also help you save and invest for the long term.

Take care of your mental and emotional needs

Last but certainly not least, you’re likely feeling a lot of mixed emotions if you have been laid off or furloughed. While layoffs are common occurrences, it’s hard not to feel discouraged and worried about what comes next. On top of that, we’re all dealing with uncertainty with this ongoing pandemic. During times like this, it’s particularly important to take care of yourself and give yourself time to grieve, process, and take action.

If you’ve been laid off, try and connect with coworkers before your last day at work. Reach out to your network to see if they have heard of any potential job leads. Join networking groups and ask for referrals if you hear of possible job leads. Update your resume and have someone you trust review and provide feedback. It’s also okay to take some time off to decompress and evaluate next steps. Spend time with family, friends, and loved ones. Take walks, read a book, watch a movie—do something (however small) for yourself that makes you happy.

What about those laws that provide economic relief for the COVID-19 pandemic?

White House and Congress are negotiating the next coronavirus bill at the time of this writing. But the Coronavirus Aid, Relief, and Economic Security (CARES) Act does offer some solutions. If you need emergency funds, you can withdraw up to $100,000 from a qualifying IRA or 100% of your vested 401(k) balance, whichever is less. You will need to self-certify that you, your spouse, or a dependent have either been diagnosed with COVID-19 or experienced a direct financial impact due to the pandemic.

You won’t pay the usual 10% early withdrawal penalty but the amount you withdraw will be counted as income. You may spread the income tax on your distribution over three years. Also, any loan payments that would have been due between March 27, 2020 and December 31, 2020 can be deferred for one year. Check with your 401(k) administrator to confirm any other plan-specific requirements or restrictions.

We are here to listen and help you manage through all your life transitions and events. You can also visit our Insights page to find more information about how to navigate the rapidly changing market and economy.