Look Before You Jump
- Don’t neglect your old 401(k) and stock options from your previous employment.
- Ensure you have adequate health coverage for you and your family throughout your job change.
- Understand the reasons for moving jobs.
From scrappy startups to global behemoths, the technology sector is firing on all cylinders. Competition for skilled workers has never been stronger. As a tech employee, you’re in a great position to leverage your talents, skills, and connections—which often means changing companies. Research shows that most tech workers change jobs about every two years.
When you do move jobs, remember to address these important issues prior to changing employers.
1. Don’t neglect your old retirement plan.
When it comes to your 401(k) you built at your former company, you have four options:
- Leave it where it is.
- Roll it into your new 401(k) or similar retirement plan, if allowed.
- Roll it into a self-managed IRA.
- Cash it out – but please don’t, you are essentially hitting the reset button on your retirement savings goals. If you need it for emergencies, that’s another discussion.
There are pros and cons to each strategy, but unless your old company’s plan had exceptionally low internal costs and a vast menu of funds to choose from, you may be better off rolling your old retirement account into your new one. The exception might be if you’re moving to a startup company that is just beginning a new 401(k) plan and/or has a very limited number of fund options.
If you roll the funds into your new company’s plan or a self-managed IRA in accordance with IRS rules, don’t worry, it is not a taxable event. Do it wrong, and you may be on the hook for taxes and penalties. When it comes to a self-managed IRA, you have more control over how your retirement savings are invested, but it is one more account for you to manage and that may not be best for your situation.
Also, unless you’re facing a significant emergency, never withdraw funds from your old retirement account until retirement. The taxes you’ll pay on top of early withdrawal penalties can be painful and set you back several years.
2. Maintain health coverage if taking time off between jobs.
Make sure you qualify for COBRA (which can provide you and your family with up to 18 months of health coverage after leaving your job) or purchase a new insurance plan to cover the gaps until your new job’s health benefits begin. An unexpected major illness or injury, while not insured, could wipe out your hard-earned savings.
3. Don’t burn bridges.
With so many people job-hopping in the dynamic tech industry, it’s inevitable that you’ll cross paths with past colleagues and bosses. Don’t leave your current job on bad terms (no matter how unhappy you are) and derail your success at your new employment.
4. Consider the reasons for a job change.
Money isn’t everything. Does the salary increase make up for a less satisfying job with longer hours? Is the larger paycheck enough to justify a longer commute and/or more travel? On the flip side, I know several successful tech workers who’ve taken a slightly less lucrative new job because the work is more stimulating, they’re making a bigger impact and trading a 90-minute train commute for a 10-minute scooter ride to work.
We Can Help
If you or someone close to you has concerns about the pros and cons of their next career opportunity, please don’t hesitate to contact us. We offer complimentary initial consultations through our Second Opinion offering.
James Nevers,CFP® is a Senior Advisor at Soundmark Wealth Management, LLC. James works closely with physicians, business owners, directors and executives at Amazon, Microsoft, and Boeing, and other successful individuals to help them define their financial goals and implement an ongoing financial planning process.