New job checklist: organizing your finances after a career change

Starting on a new career path can be a thrilling and busy time full of new routines, expectations, and responsibilities. Whether you’re stepping into a different role or changing your profession completely, there are likely financial changes to be prepared for to ensure a smooth transition. With new company benefits, compensation, and insurance coverage to coordinate, here are some helpful steps to add to your career change checklist.

Sign up for company benefits

Upon starting your new job, your compensation package may include new coverage policies, flexible or health spending accounts, paid time off, bonuses and commissions, childcare, student loan repayment, and tuition reimbursement. Be sure to review your onboarding packet and keep an eye out for emails so you know which benefits require enrollment and if there are eligibility waiting periods. Certain benefits, such as company-sponsored short-term and long-term disability coverage, often require up to a year of service with the company before you are able to apply the benefit. Be aware of these waiting periods and explore supplementary coverage options to make sure your income and health are fully protected throughout your first year of employment until waiting periods are met.

Your company may also offer informational events to explore all the benefits available to you. If you have questions about any of your benefits or company perks, reach out to the hiring manager or Human Resources representative for assistance.

Review insurance coverage

When you leave an employer, benefits such as medical, dental, and vision insurance coverage will likely terminate within the 30 days following your last day of employment with your previous employer. It is important to confirm those details to ensure you do not have any gaps in coverage. If you are transitioning from a previous medical plan to your new employer’s medical plan, it is good practice to fill prescriptions or schedule your regular doctor’s appointments prior to coverage termination because it can take over a week for a new insurance company to recognize you as a member in their system. You will be offered COBRA (Consolidated Omnibus Budget Reconciliation Act)coverage to continue your previous employer’s health coverage for 18 months, this option is usually more expensive as you forfeit the company’s contribution to your monthly premiums and you begin to pay the full cost of the plan. Another important consideration is if you had group life insurance coverage, which will likely end but may have options for you to convert the coverage to an individual policy.

Eligibility for the benefit programs at your new company can start anywhere between your first day or your ninetieth day of employment. Be sure to review when coverage will go into place and check your onboarding packet for deadlines to enroll. You often have to make enrollment decisions within the first month of employment and, if this deadline is missed, the opportunity to elect coverage may be closed until the next annual open enrollment timeframe.

Coordinate your paycheck and budget

Stepping into a new career can often reveal financial opportunities, whether it’s a bigger paycheck, bonuses, retirement benefits, or other positive perks. As you begin to get into the swing of things, it can be beneficial to revisit your budget and account for the incoming changes. Is the pay period different from your previous employer's? Do you have a little extra you can put into savings each month? If your organization is similar to most employers, you can likely count on a bi-monthly paycheck. To make sure your income can cover your expenses and also work toward achieving your short- and long-term financial goals, take a detailed look at your budget.

A common strategy is breaking down your paycheck by the 50/30/20 rule of thumb. 50% of your payment will go to essentials like your rent/mortgage, groceries, utility bills, and regular expenses. 30% of your paycheck is reserved for non-essentials, including entertainment, dining out, and travel. The remaining 20% would then be allocated to personal savings and financial goals. This could include paying down debt, building an emergency fund, and putting money toward retirement. If your paycheck frequency becomes more often and you’re getting paid every week, you may want to update your budget to spread out bill payments throughout the month, since money will be coming in more regularly.

As you build a budget around your new income, it is also good practice to review your first few paychecks to be aware of your payroll deductions. Federal and state income taxes are considered mandatory deductions and likely outside your control. Other, pre-tax deductions such as monthly benefit premiums and 401(k) retirement plan contributions are something you may want to audit. As you organize your budget, remember to use your net pay, or the amount remaining after your payroll deductions have been subtracted, to calculate how much money can be allocated to each area. Even if your new job comes with a higher paycheck, you don’t need to change your day-to-day expenses if it’s not necessary to do so. Instead, this could provide an opportunity to put more toward savings, reduce debt, or contribute more to your retirement account(s) for the future.

Keep up with your retirement savings

Oftentimes moving in a new career direction provides fresh opportunities to save for the future and create a more financially secure retirement. Take a proactive approach to familiarize yourself with your new benefit offerings to maximize your savings opportunities. Your compensation package may contain a higher employer match on your 401(k) but you need to ensure your own contribution is sufficient to be eligible for the full employer portion. Or your new company may offer stock ownership opportunities, but it requires active enrollment into their stock program. Since you’ve worked hard to begin building for the future, it’s important to keep that retirement savings momentum with a simple review of your existing retirement accounts to determine how best to move forward with the new options available to you.

If you have a 401(k) with your previous employer, you have a few options depending on your personal goals. You can leave the account where it is and no longer contribute to it; roll it over to your new employer’s 401(k); take a lump sum distribution, known as cashing it out; or roll it into a traditional or Roth IRA outside of your new employer’s plan. You may want to talk to your financial professional about what may be your best move based on your current account balance, tax implications, withdrawal fees, and savings options outside your previous and current employer.

What happens to your retirement account when you change jobs?

If you decide to leave your 401(k) with a previous employer, your funds will continue to be managed and your money will grow based on the investment option selected, but you will no longer be able to make contributions to that account. You may be able to organize a direct 401(k) rollover, which will transfer funds from your previous employer’s 401(k) to your new plan without incurring taxes or penalties. If you go this route and keep your account with your former employer, be sure to keep that account on your radar and keep your contact information with the plan sponsor current.

Do you have to roll over a 401(k) when you change jobs?

If you prefer to keep your assets all in one place, you likely have the option to roll over your 401(k) to your new employer, but it is not required. However, accounts held with your previous employer may now incur monthly processing fees that you have to pay as you are no longer part of their group plan. Verifying the cost of maintaining your previous accounts could influence whether or not you decide to consolidate your 401(k) savings. You may be able to organize a direct 401(k) rollover which will transfer funds from your previous employer’s 401(k) to your new plan without incurring taxes or penalties. It’s important to check with your new company’s plan administrator to see if rollovers are permitted and what steps are required.

A new job can reveal many untapped opportunities, from expanding your network and skill set to boosting financial and professional wellness. Taking a new career direction is often a good time to connect with your financial professional to make any updates to your financial plan, revise your budget, and decide if you can add or delete any goals to better align with your current situation. Even though a career change can be a hectic time, taking a minute to make a financial plan for the transition can help you be better prepared for the updates that lie ahead and allow you to make the most of this exciting time in your life.

B3-NA-2-23

REV 2/2023