Switching jobs? Here’s how to keep your finances on track.

If a portion of your current compensation is tied to an annual bonus, equity compensation or deferred compensation plan, such as a retirement plan or stock option plan, you may have to forfeit those assets if they are not fully vested and, in the case of stock options, also unexercised, if you move on. 

Knowing that you’re leaving assets on the table may give you leverage to negotiate with your future employer, says Taylor. On the other hand, if you’re exercising your vested stock options or taking a lump sum distribution from a retirement plan when you leave your old job, you’ll want to discuss with your financial advisor and tax professional how to manage them in the most tax-efficient way.

“You need to find out not just what’s available but what you actually qualify for — and when,” says Debra Greenberg, director, Retirement & Personal Wealth Solutions, Bank of America. “A pay hike is important, but if you lose access to benefits like a company-funded pension or end up with a smaller matching amount for your retirement savings account, you may end up worse off.”

Conversely, over the years, a more generous retirement plan can offset the impact of a slightly lower salary. Ask your financial advisor how a prospective company’s retirement or profit-sharing plan, as well as its other benefits, could affect your finances, both now and in the future.

If a job involves relocating, look closely at housing costs, says Taylor — they can vary widely by region. City, state and local tax rates can also have a significant impact on your net income. See if your new employer might be willing to pick up the relocation costs, and ask your financial advisor to help you calculate what your net income and cash flow might look like in a different area.

If there’s a waiting period before health insurance kicks in, you may need to sign up for COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage or interim catastrophic insurance. Ask your financial advisor to walk you through your health-care coverage options, including the benefits of enrolling in a high-deductible health plan in conjunction with a health savings account (HSA).

Your advisor can also help you weigh benefits that may be funded through payroll deductions, such as education savings accounts, family care or HSAs. And look at your new employer’s offerings for life and disability income insurance — if they’re not as generous as those of your former company, your advisor can do a full assessment to help you determine whether you might need additional coverage. Some companies now offer student-loan repayment assistance plans — something your former employer may not have offered, notes Greenberg..

In addition to interim health-care coverage, you may have additional temporary expenses — moving costs, for instance, or the cost of a long-distance commute until you get settled closer to your new workplace. “Keep in mind that a job change can make it more difficult to immediately qualify for a mortgage or other loans, so you may need to manage two housing payments or rent for a period,” Taylor says.

According to a December 2020 survey from Civic Science, 43% of U.S. adults aren’t fully aware of their 401(k) options when they switch jobs. You have choices about what to do with your 401(k) or other employer-sponsored retirement accounts. Depending on your financial circumstances, needs and goals, as well as plan design, you may be allowed to 1) leave the funds in your existing retirement account under your old employer’s plan; 2) roll the balance into a traditional IRA or Roth IRA (including converting pre-tax funds to a Roth IRA); 3) roll over your 401(k) account under your prior employer’s plan to a 401(k) account under your new employer’s plan, or 4) cash it out (i.e., take a distribution) — though that may not be advisable from a tax or retirement-readiness perspective, notes Greenberg.

Your financial advisor and tax professional can help as you decide the best course of action for your situation, which will depend on your 401(k) account balance, the investment options and fees in your old and new accounts, your tax bracket and other considerations.

Each choice may offer different investment services, fees and expenses, withdrawal options, required minimum distributions and tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.

“When you open a retirement account under your new employer’s plan, take a look at the company match, the plan’s investment options and your new salary. And consider increasing your contribution,” says Greenberg. “Try to meet the match, at the very least.”

That depends. Overall, job transitions present a good opportunity to meet with your advisor to assess your progress toward specific financial planning goals and to consider potential adjustments. They can help you fine-tune your portfolio to ensure that your investments are still aligned with your time horizon and level of risk tolerance and are appropriately diversified to help you manage market fluctuations.