If you’re changing jobs in the near future, there are steps you can take now to make sure the transition goes smoothly for your personal finances and retirement planning.

The financial component of changing jobs can be tricky, especially for senior managers and executives who have complex benefit and compensation packages.

If you don’t handle the details well, you could undermine your retirement goals, leave significant money on the table or suffer a cash flow shortage during the transition period. With just a little preparation, you can avoid those pitfalls.

Think Holistically

You should consider salary, retirement benefits and other compensation within the context of your whole financial picture. A job change presents a good opportunity to reassess your overall strategy for retirement planning, estate planning and taxes. How well is your current strategy working for you, and does it need to be updated? What financial goals have you reached, and do you need to set new goals? With the help of your advisor, you can create a new long-term financial plan or update a current one.

To understand what benefits and assets you have before you leave a job, consider the following:

Restricted Stock, Stock Options and Performance Shares

Start by looking at the pertinent details of vesting schedules, non-compete provisions and other rules that may apply. Review your stock grant agreement, offer letter or employment agreement, and check other company materials that may include your stock plan.

You will forfeit any restricted stock units that have not vested when you leave your job. You should consider delaying a job change if substantial amounts of restricted stock units are close to vesting. The same is usually true for performance shares and stock options.

If you own vested stock options, how much time do you have to exercise them after you leave the job? The typical time frame to do so is 90 days, but check your plan documents to confirm the actual time frame. If you wait too long, the options could expire. It is also important to know what your official termination date will be, so you can calculate the exercise period accurately.

Some restricted stock and stock options come with non-compete clauses. Find out if that’s the case for you before you accept a new job with a competitor.

Defined Benefit Pension and SERP

With a defined benefit pension, you may be able to take a lump sum for the benefit you have accrued or collect a monthly payout when you retire. Which choice is better? It depends on your age, your retirement goals, the financial status of the employer and the amount that you have accrued so far. If you have 15 or 20 years until you plan to retire, can you do better by taking that money and investing it with your other funds?

If you contributed funds to a defined benefit pension, you can roll that money into an IRA, so it will retain its tax-deferred status.1 A less attractive option is to cash it out, but then you would likely have to pay federal income taxes, plus a 10 percent penalty for early distribution if you are under age 59½.

What if you choose to take the monthly payments after retirement and the company goes bankrupt? The pension benefits will be paid, but only up to a capped maximum amount.

Supplemental Executive Retirement Plans (SERPs) may be a defined benefit, defined contribution, cash balance or target benefit arrangement. Your SERP benefits could be subject to conditions such as a vesting schedule, achievement of certain goals or reaching a certain number of years of service. Check your plan documents to determine the plan conditions and identify any requirements you have not met yet. Some SERPs provide reduced benefits or no benefits if the employee leaves the job before a certain age or before reaching retirement.

401(k)

You have four options for your current 401(k) account:

  1. Roll the money into a 401(k) with your new employer if you are pleased with that plan.
  2. Roll the money directly into an IRA.
  3. Keep the money in your current 401(k) if it’s an excellent plan, but be aware you could face extra fees for doing so.
  4. Take a lump sum if you need cash, but understand you could have to pay income taxes on that money, plus a 10 percent penalty for early distribution if you are under age 59½. You could also miss out on the continued tax-deferral of your 401(k) funds.

It’s a common mistake to forget to roll over the money, leaving behind a string of 401(k) accounts from various financial institutions over the course of a career. Instead, consolidating all of your retirement funds in one account makes it simpler and easier to manage effectively. Also, you likely won’t be taxed on a direct rollover.

If you hold a lot of company stock in your retirement accounts, it may be worthwhile to withdraw the company stock from your 401(k) and take a net unrealized appreciation distribution, which leaves you with the shares. This approach could reduce the amount of taxes you eventually pay on your distribution.

Health Plan and Supplemental Executive Medical Insurance

Find out when your current health insurance will expire and when your new coverage will take effect. Some companies require new employees to wait six months or a year before they become eligible for health benefits. If necessary, you can pay for COBRA continuing health insurance or shop for individual coverage on your state’s health insurance exchange.

Life Insurance

If you are in an employer’s group plan, that coverage may end when you leave your job. If you have an individual policy, your coverage will remain the same. Find out how much life insurance your new employer offers and how much it will cost you.

A job change is a good time to review and update the beneficiaries listed on your life insurance and retirement accounts. You may want to change your beneficiary designations after life events such as marriage, divorce, birth, death or adoption of a child. These designations supersede your will.

Comparing Old and New

When comparing your old compensation and benefits package to your new one, make sure you are comparing apples to apples. This means you need to understand not just the value of each piece of the package, but also how vesting schedules and other details will affect your cash flow and taxation. For example, would a $10,000 signing bonus put you into a higher tax bracket?

You may be able to negotiate with your new employer to get more relocation benefits, commuter benefits or a cost-of-living adjustment. If you’re relocating to another state, research the state, county and city taxes. Income tax, property tax and sales tax may affect your cost of living.

Summary

Take your upcoming job change as an opportunity to think broadly and strategically about growing your wealth now and in the future. Find out as much as possible about the benefits your new employer offers and the tradeoffs of certain choices over others. Picking the right time to change jobs can make a big difference for your retirement savings. With a little research and decision-making with your financial advisor, that difference can make a positive impact.

1.Fairman Group LLC does not provide tax advice to its clients. You should seek the advice of a tax professional to determine the tax consequences of any strategy to your particular situation.

The information contained in this article was developed from sources deemed to be reliable. This is not an investment recommendation or endorsement of any strategy contained herein.
© 2015 LederMark Communications