If you have been laid off, furloughed, or you are starting a new job, there are actions you can take during this transition to keep your financial goals and healthcare on track. Here are some ways to help ensure you don’t overlook any of the details as you adjust your benefits and financial savings plans to manage this life event.
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.
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:
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.
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:
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.
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.
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.
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.
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:
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.
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.
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.
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