Switching Jobs

When changing jobs, even to a higher paying job, there are many financial issues for you to consider. A financial plan can help organize your thoughts and make the transition less stressful.

Will you have a gap between paychecks, and if so, what do you need to save to cover this time? What about any changes to or gaps in your insurance coverage, including life, health, and short-term and long-term disability? When will the old benefits end and new benefits begin?

You’ll also need to decide what to do with your employment-based retirement savings. With a defined benefit plan, if you leave after being vested in the plan but before the plan’s retirement age, the benefit generally stays with the employer’s plan until you file a claim for it at retirement. Some defined benefit plans offer early retirement options.

Defined contribution plans, such as 401(k)s and 403(b)s, allow the following options:

  • A lump sum distribution. This allows you to cash out your account in full with a single payment. You will owe taxes and may have to pay tax penalties if you take money out before the age of 59½.
  • A rollover to another retirement plan. You can ask your former employer to transfer your account balance directly to your new employer’s plan if it accepts such transfers.
  • A rollover to an IRA. You can ask your former employer to transfer your account balance to an individual retirement account (IRA) where it can continue to grow over time, giving you more income to live on in retirement.
  • No changes. You may be able to leave your account balance in your former retirement plan.

For additional information on rollovers, contact the U.S. Department of Labor’s Employee Benefits Security Administration.