Financial Moves to Make Before Leaving a Job

Quick Answer

Before leaving your job, learn what happens to your employer-provided benefits and if you need to make any financial moves. Find out what happens to your 401(k), health insurance, life insurance, unused PTO and other employee benefits once you leave your job.

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Once you've given your employer notice that you're leaving, take a moment from planning your farewell happy hour to check some items off your financial to-do list. Before leaving your job, find out what will happen to your retirement plan options, health insurance and unused time off. Here are some other financial moves to make before leaving a job.

1. Explore Your Retirement Plan Options

Money vested in an employer-sponsored 401(k) plan is yours to keep. Generally, you can leave the money where it is, roll it over into a retirement plan at your new job, or roll it over into an individual retirement account (IRA) that you open. If you're partially vested, you'll only be able to keep a portion of your employer's contributions.

Your account balance may affect your options. If the balance is under $1,000, your plan administrator may cash it out and give you a check. If the balance is $1,000 to $5,000 and you don't cash it out or roll it over, your plan administrator might put it in an IRA for you.

Taking distributions from your 401(k) could mean hefty taxes if you don't roll the money into another retirement account within 60 days. Your employer must give you an explanation of your rollover options in writing. If you still have questions, contact your plan administrator. Not sure what to do? Leaving the money in your former employer's plan until you're settled at your new job gives you time to consider your options.

A 401(k) is a defined contribution plan, meaning the account's balance upon your retirement isn't guaranteed. In a defined benefit plan, such as a pension, you're promised a certain payment for life upon retirement. Whether you receive any pension money upon termination depends on your plan. For example, you may have to wait until a certain age or wait a certain number of years after termination to take distributions. Find the details of your pension plan in your summary plan description document or ask the plan administrator.

2. Pay Back Loans From Your 401(k)

An outstanding loan from your 401(k) must be repaid in full within a set time period after leaving your job. Your loan agreement will specify what this grace period is. In most cases, it's only a few months, so be sure to budget for this extra expense.

3. Plan to Exercise Your Stock Options

Does your company give employees stock options? Find out when yours vest. You may want to delay quitting until this date, since vesting generally stops when you leave a job. At that point, you'll have a limited time (usually 90 days) to exercise any vested options by purchasing stock. Confirm the terms of your stock option agreement with your employer so you don't miss this deadline.

4. Arrange Interim Health Insurance

Even if your new job offers health insurance, you may not qualify for coverage immediately. Employers can impose a waiting period of up to 90 calendar days before new hires become eligible for group health insurance. Find out when your current health insurance ends; then figure out where to get coverage until your new insurance kicks in.

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employers with 20 or more employees must give former employees the choice to stay on their company-provided health plan for up to 18 months after leaving a job. (Your state may have its own law applying to smaller companies.) Your company must give you a written explanation of your rights to choose or decline COBRA coverage within 14 days of termination.

COBRA coverage bridges the gap between your old and new health insurance, but it can be pricey. Many employers pay part of employees' health insurance premiums, but COBRA requires you to pay the full premium yourself. See if you can negotiate a severance package where your former employer keeps paying a portion.

Usually, you'll have 60 days to choose COBRA coverage. Once you've elected COBRA, you have 45 days to make your first premium payment. Then coverage goes into effect retroactively to the date your employer-sponsored health insurance ended.

Other ways to stay covered include joining your spouse or partner's health insurance plan, purchasing a private individual policy or buying health insurance on the health insurance marketplace. If you elect COBRA coverage, however, you can't change your mind and buy insurance on the marketplace until open enrollment (usually in the fall).

New insurance may mean switching physicians, dentists and other care providers. Before your current plan ends, schedule visits you've been putting off, refill your prescriptions and tie up any other loose ends. If you've met your annual deductible, schedule recommended procedures so the insurance company can foot the bill.

5. Make the Most of Your Remaining Health Benefits

Money in a flexible spending account (FSA) or health reimbursement arrangement (HRA) is not portable. Since you'll lose it when you leave your job, try to use the funds before you go. Qualifying medical expenses include copays, coinsurance and deductibles; eyeglasses or contact lenses; prescription and over-the-counter medication; dental care and much more.

Money in a health savings account (HSA) belongs to you even after leaving your job. Only people with high deductible health plans (HDHPs) qualify for HSAs. If your new job doesn't have a HDHP, you can't continue to fund your HSA, but you can still withdraw the money.

6. Ask About Company-Provided Life or Disability Insurance

Many companies provide a limited amount of group term life insurance and/or disability insurance to employees at little or no cost. See if you can convert these policies to individual policies when you leave your job. If not, you may need to buy more insurance.

7. Manage Taxes on Severance or PTO Pay

Employers handle unused paid time off (PTO) in a variety of ways. Some require you to use up the time. In this case, see if you can plan some downtime before your new job starts. Other employers cash out some or all unused PTO as a check. (In some states, cashing out PTO is required by law.) You may also get severance pay.

Cashed-out PTO and severance pay are considered "supplemental wages" and are subject to federal income tax. This tax rate varies, but it could be much higher than the rate at which your regular wages are taxed. Your company's payroll department can help you determine how best to minimize these taxes.

8. Take Advantage of Other Perks

Does your employer offer other financial perks, such as discounts on tickets to plays, movies, sporting events or amusement parks? Some companies offer employees discounts on furniture, appliances and electronics or on travel. Snap up tickets, make travel plans or buy new furniture while you still have access to these deals.

Give Yourself a Fresh Financial Start

If your new job means a bigger paycheck, plan how to use that extra money and any supplemental wages from your old job. Even a small windfall could help you pay down debt, improve your credit score and start your new job on solid financial footing.

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