Are you anticipating a job or career change? It’s important to do some homework before you make the leap.
Consider these steps before you resign:
1. Review your retirement benefits. Check the schedule for your employer’s 401(k) and profit-sharing contributions to see how long you have to work to claim any matched funds. If you’re close to but not yet fully vested (meaning you’re entitled not just to the dollars you contributed but also to the dollars your employer did), it may be worth sticking it out a little longer.
Keep in mind that many plans require that you be employed on the last day of the plan year to get employer contributions for that year, even once you are vested. You may want to wait until after the plan year ends before you terminate employment so you don’t lose those contributions.
2. Manage your health insurance. If you don’t already have a new position or if your new employer’s health plan has a waiting period, figure out where you will get coverage to fill the gap.
If your current company has 20 or more full-time employees, you’ll be able to keep your current plan for up to 18 months after you stop working under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Keep in mind that you’ll likely have to pay a lot more because you will pay both your share of the premium and what your employer used to pay. If that’s the case, you may want to compare costs to coverage available on the government’s health insurance marketplace.
Also keep in mind that if you live in a state with a health insurance mandate and you do not purchase coverage, you may have a tax penalty (depending on your income).
3. Spend your FSA accounts. If you put pretax money into a flexible spending account (FSA) to pay for health care or child care, try to spend all the money in the account before you resign because FSAs typically operate on a use-it-or-lose-it basis (though you may be able to extend with COBRA). In contrast, if you have money in a health savings account (HSA), that money is yours to keep.
4. Consider a group life and disability insurance conversion. If you have life or disability coverage through your employer, you may be able to convert your group policy to an individual policy that you can take with you. Check with the insurer to see if that’s the case. Often you have a short window after your resignation to apply for continued coverage. This can be an especially good option if insurers consider you a risk because of your age or medical condition.
5. Check your employment contract and non-compete agreement. Have a labor attorney review any legal documents you signed when you were hired, to evaluate their terms and enforceability.
Some contracts may require you to pay back relocation money, education grants, or bonuses if you don’t stay for a certain period. Others include “golden handcuffs,” that may indicate you will lose unvested options, restricted stock, deferred compensation, and other benefits upon resignation. Still others may require waiting for a specified length of time before taking a job with a competitor.
6. Check the terms of stock options, restricted stock, or other forms of non-salary compensation. The vesting schedule is key because you may want to delay your departure if a valuable number of options will vest in the near future. If you’re already vested, find out if you’re still subject to the same trading windows and how much time you have to exercise your vested options once you resign. In many cases, options expire if they aren’t exercised within a certain time frame — typically 90 days after your departure.
7. Consult a financial advisor. Whether you’re planning to take some time off or go right into a new job, a financial advisor can provide valuable guidance through the transition. For example, an advisor can run the numbers to compare your new compensation offer to your current compensation while factoring in benefits. That information can provide valuable insight during salary negotiations. A financial advisor can also explain how to transfer your retirement assets, help you plan for a period of no income, and discuss the effect of your career change on your long-term financial health.