5 Things You Need To Do When Changing Jobs

Changing jobs is a fact of life — now more than ever. In fact, people tend to change jobs just about every 4 years, and 86% of recently-polled workers said that the COVID-19 pandemic has stalled their respective careers. With 95% of workers seriously considering quitting their jobs, it’s critical to have a plan for some of the bigger things that will change along with your day-to-day role.

Here, we’ll discuss five things you need to do if you plan to jump ship in the near future.

1. Address your health insurance situation

It’s easy to forget that one of the huge benefits of full-time employment is access to reasonably-priced health insurance. If you’ve always been a full-time employee, there’s a decent possibility you haven’t thought much about what the health insurance landscape looks like if you were to leave your employer.

The good news is that most (but certainly not all) employers offer their permanent employees access to some form of health insurance. When you leave your job and are planning to move to a new one, you might simply elect to change your coverage to your new employer’s plan. Easy enough.

But what happens when you aren’t going to a full-time employer? You might be setting out on your own, taking a break, or even going back to school. If this is you, you’ll need to choose from the following options:

Elect COBRA coverage.

COBRA is legalese for “continuation coverage”. Through COBRA, you’ll be able to maintain your previous employer’s health insurance coverage for a specified period of time, usually 18 months. You’ll need to elect coverage within 60 days of termination, and you’ll have 45 days from the time of election to make your first payment.

While COBRA coverage is there if you need it, the amount you’ll need to pay will be significantly more than you did when you were an employee. This is because, under COBRA, you’re now responsible for the entire cost of insurance.

When you’re employed, you pay the employee’s share of the premium and the employer pays their share; when you elect COBRA, you pay both pieces of the premium. For example, assume that on average, a worker pays 20% of the total premium for single coverage and 30% of the total premium for family coverage; for a policy premium of $1,000, this would amount to paying $200 or $300 while employed. Upon electing COBRA coverage, the worker would be responsible for paying the entire $1,000 premium to maintain the same coverage.

Join your spouse or domestic partner’s health plan.

While this is only a choice if you have a spouse or domestic partner and they have a plan for you to join, it is a viable option. You can generally be added to your spouse or domestic partner’s health insurance coverage through their employer. It’s a good idea to understand the new insurance plan in advance, as well as any changes to your in-network providers, as your process around receiving and accessing healthcare may be different under your spouse’s plan.

As an example, you may switch from an insurance plan that doesn’t require specialist referrals to one that does; this can make life more complicated if you aren’t used to the complexities of some insurance plans.

Search the healthcare marketplace in your state.

State-offered exchange plans are an option for those looking for a potentially lower-cost option. These plans were made available by the 2011 Affordable Care Act, which created health insurance exchanges and allowed greater access to health coverage for uninsured individuals. While the quality of plans will vary from state-to-state, you may qualify for subsidized health insurance if you fall within certain income limits.

Some health insurers, like Oscar Health, also allow you to purchase insurance plans directly. It’s worth comparing plans across different platforms to ensure you’re getting the best value.

If you think you can go without coverage, keep in mind that going uninsured can expose you to some significant financial risks. Your health isn’t something that should go unprotected, so creating a plan for health insurance — ideally well in advance of your job departure — is a worthwhile investment of your time.

2. Roll over your 401(k) plan

Forgetting about your previous employer’s 401(k) plan is not a mistake you want to make: we’ve estimated that dormant 401(k) accounts are costing America’s workers big money, to the tune of $700,000 in lost savings — per person.

Why do abandoned 401(k)s matter so much? Legacy 401(k) plans are frequently with high fees, redundant administrative costs, and subpar investment choices. Left-behind 401(k)s are also often left out of comprehensive financial plans, which prevents individuals from making the most of their retirement savings.

If you’re moving to a new job and want to minimize tax consequences, consider the following options:

Move your 401(k) to a “like-tax” IRA.

If you’re currently using a pre-tax 401(k) at your job, roll it over to a pre-tax, traditional IRA. You’ll preserve valuable tax-deferred growth, expand your investment options, and, in all likelihood, lower your costs. Rolling over your 401(k) is also a vote for consolidation and simplicity, which tend to work wonders for the average investor.

Merge your old 401(k) with your new 401(k).

This all assumes your new employer offers a 401(k) and allows roll-ins, but in the event that they do, it’s not a bad idea to merge the two together. This is usually dependent on the quality of your new plan versus the quality of your old one. But if your new 401(k) is lower-cost or has a more friendly investment platform, bringing your old plan over makes a lot of sense.

Do nothing, and leave your 401(k) behind.

This is an option if you currently have a firm handle on your 401(k) and its investments and it’s a low-cost plan. There are benefits to keeping your 401(k) in its current state (other than the time savings of not having to move it). Among them: you receive a higher level of creditor protection with a 401(k) as opposed to an IRA, and you can access the money penalty-free if you decide to retire after age 55.

On the topic of creditor protection, 401(k) assets are among the most protected if you were to ever declare bankruptcy. IRA assets, on the other hand, come with a lower level of protection. While declaring bankruptcy isn’t necessarily a probable outcome for most people, the added protection is worth having for some.

Should you roll over your old 401(k)?

Sound financial planning involves looking at your total financial picture. While it’s not by any means mandated that you move your 401(k), you may find that it does help you keep yourself organized and that it brings you closer to optimizing your finances. Further, by moving your 401(k) to an IRA, you won’t need to move it again should you choose to change employers in the future. In other words, rolling over your 401(k) to an IRA means that you aren’t beholden to any future employer.

The main takeaway with regard to your 401(k) is that you should take some time to think about it as a piece of your complete financial situation. As you do that, consider the pros and cons of moving it, and make a final decision from there. A job change can serve as a powerful reason to reevaluate your investing goals and to take stock of your broader financial life.

3. Keep track of your HSA

Your Health Savings Account (HSA) doesn’t have outrageously high contribution limits (currently $3,600 for an individual and $7,200 for a family), but it does offer a big chance to accumulate tax-free money. When you leave your employer, make sure you don’t leave your HSA behind.

Even though it may feel like a “hidden” account, your HSA can play an important role in an investment portfolio, and is as portable as you want it to be. You have the option of moving your HSA, much like any other account, from your previous employer’s HSA provider. Once you’re no longer employed, you can make your own choice as to where you’d like to hold it. Consolidating your HSA with other investment accounts is often a good idea from a purely organizational standpoint.

Even though HSAs are intended to be a tax-free way to save for future medical expenses, they can also be used “off-label” as a retirement savings vehicle. The only catch, if you go this route, is that you’ll need to be able to cover medical expenses through other means. If you have other funds to cover co-payments and other doctors’ costs, maxing out your HSA and treating it as an extension of your tax-exempt Roth IRA is a great financial planning move.

4. Be careful with equity stock options

If you work at a startup, especially in the tech world, there’s a very good chance that stock options play into your total compensation. And in many cases, the value of your stock options may far exceed your salary.

While the mechanics behind Non-Qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) are particularly complex, at a minimum you’ll want to be sure that you understand the vesting schedules for the options you’ve been granted. When an equity option is “vested”, that simply means that it’s yours to keep, regardless of your employment status at the company. At a startup, you might find this information on a platform like Carta.

Say you’re granted a certain number of equity stock options and have the right, but not the obligation, to exercise them at a specified share price. “Exercise”, in this context, means to buy a certain number of company shares at a predetermined price, also known as the exercise price.

For example, if you’re granted options to buy company stock at $25/share, you’ll be able to exercise the right to buy stock at that level regardless of the current share price. If the current share price is $10/share and below the exercise price, your options are effectively worthless. But if the current share price is $75/share and above the exercise price, you might consider exercising the options.

You typically have 90 days from your termination date to exercise any vested options, though the timeline may be extended if disability caused your employment separation. Unvested options, however, will be forfeited upon your departure; this is why it’s especially important to read and understand all relevant schedules before leaving.

Given that exercising stock options can be complicated, it’s advisable to consult with a trusted tax advisor or comprehensive financial planner to fully understand the consequences of your decisions surrounding option exercise.

5. Maximize commuter benefits

If you won’t be commuting to a formal office anymore — or even if you will be — taking the last few months to maximize your contributions to a commuter benefits account can save a fair amount of money.

Each month, you’re eligible to divert up to $270 of your pre-tax income to commuter benefits spending, which, when spread out over a year, can reduce your taxable income by $3,240. This earmarks specific dollars to only be spent on specific forms of transportation, which most people use in some capacity whether they’re commuting to an office or not.

Diverting money towards your commuter benefits card is an interesting way to build a nice savings bucket solely dedicated towards transportation, but make sure to start well in advance of leaving your employer for maximum utility.