planning career shift from employee to self employed business owner and maybe investor - napkin sketch concept with coffee cup on table

While switching jobs or careers may be exciting, it’s important to do your due diligence in order to maximize your financial benefit and to protect yourself. Even if the new position pays more, pay close attention to the compensation and benefit details to avoid surprises and ensure a smooth financial transition.

When you change jobs, important differences are likely to surface between retirement plans, health insurance and other programs at your old employer vs. your new employer. Navigating these differences is critical in getting the most out of your benefits and protecting long-term investments.

Here are some tips for taking the right actions before, during and after your career change:

Before your career change

In the weeks or months leading up to a career change, you can take steps to begin preparing for the transition ahead. Some things you can do to prepare:

  • Make a plan – Evaluate your current assets, income and expenses, as well as the costs you will incur in making the career change. Will you have moving expenses? New clothing or tools to buy? Time gaps between the two jobs?
  • Create a cushion – Add to your savings to cover transition costs. Often a new employee faces a delay of a few weeks before receiving a paycheck, so be sure you have a cushion.
  • Check your vesting status – Your previous employer probably has vesting schedules for stock options, 401(k) matches, deferred compensation and similar benefit programs. If you’re due to vest in a few months, you may want to put off a job change to avoid leaving money on the table. On the other hand, it’s good to know what vested benefits you can count on with your new employer.
  • Watch your health benefits – Take a close look at your current health insurance (including dental and vision, if you have them) and your new employer’s plans, to be sure you won’t face a gap in coverage when you switch jobs. It may even help you to go ahead and have exams or optional procedures before the job change, depending on the health plans.

As you research retirement benefits, reach out to an financial and investment advisor for assistance.

During your transition

The transition period tends to be a flurry of activity and you may be tempted to check any box when called upon, whether by your previous or new employers, when making decisions on benefits, stock options and other programs. But it’s important to pay attention because hasty decisions can have serious long-term impacts on your finances:

  • Move retirement plans – A key decision is what to do with your 401(k) or other retirement plans. You can leave the assets in your previous employer’s plan, roll them over to the new employer’s plan, or roll them over to your own individual retirement account (IRA). Pay attention to the costs of the different choices as large employers are usually able to negotiate lower fund fees.
  • Pick direct rollovers – If you move your assets, be sure to request a direct rollover from your previous employer’s plan to an eligible plan, known as a trustee-to-trustee transfer, to avoid being hit with taxes and penalties for a cash-out.
  • Maintain insurance – Based on information you gather on insurance – health, life and disability – at your former employer and your new one, take steps to keep coverage in place. It may even be worth paying a few months’ premiums yourself if there is a gap in coverage.
  • Learn the new system – Get to know the Human Resources, payroll and benefit offices at your new employer. Don’t be shy about asking questions to understand the financial details and timing of your new compensation and benefits package.
  • Prepare for taxes – Especially if your new career pays more than the old one, you may face higher taxes. Set aside savings for extra taxes, or discuss your payroll withholding with the payroll office to be sure you are withholding enough money. Also, make notes and keep receipts and other documentation of job-change costs that might be tax-deductible.

You may benefit from consulting a tax professional about the effects of the new career itself and changes in retirement plans.

After your job change

Once you get settled into your new position, turn your attention to what comes next. Be sure you are taking full advantage of the benefit plans available to you. Stay on top of the tax situation for this transition year. Consider using any raise in pay to bolster your savings or pay down debt.

Now is also a good time to update your financial plans for the long term, including investments and retirement accounts. Use our 401(k) Contribution Calculator to evaluate your various levels of contributions and realize the future value of your retirement accounts.

Consider working with a financial advisor to select appropriate investments, making sure to diversify among different asset classes, and develop or restore an allocation that fits your goals and stage of life.

Consider holding a “financial summit” with your spouse and financial advisor. Go over the recent changes in your financial situation, evaluate the assets available for retirement and other life plans, and make adjustments as appropriate.

What to do next

  • Make a financial plan for your career transition.
  • Get details on benefit vesting and coverage.
  • Maintain insurance.
  • Review your long-term and retirement plans.