Job change? Your guide to a financially smooth job transition

ChangeIn the past, employees traditionally worked for one company for the majority of their career.  However, this is becoming increasingly uncommon for today’s workers.  Employees are typically feeling unappreciated and overworked, and as a result a number of individuals are seeking a job change more often than we have seen in the past.

With intra-career job transition becoming more the “norm” in today’s society, it’s important for you, as the employee, to understand the impact such a transition will have on your financial situation, the level of control you will have with certain benefits, the benefits you might be forced to leave behind and the critical decisions you’ll need to make along the way.

Regardless of why you are transitioning into a new role, if you find yourself in this position make sure you consider the following to ensure a smooth transition.

Considerations for your current/previous employer benefits

Changing jobs presents you with an opportunity to consolidate and take control of your retirement benefits. While each company specific plan will have its own rules, there are a number of questions to consider when evaluating what to do with your current employer retirement plans (401(k), 403(b), etc.).

Vesting Requirements

Depending on how long you have been with a company and their stated vesting requirements, you may be eligible to rollover all, or a portion of, your accumulated retirement assets within a plan. Keep in mind that all contributions/deferrals you have made to your plan will be 100% vested and can move with you regardless of the plan’s vesting requirements. Employer matching contributions, however, will be subject to the vesting rules as stated in your plan documents. Explore the rules before switching companies. It’s possible that you could be leaving money on the table if you jump ship too early.


Rollover Options

As you transition to a new position, it is important to address your prior employer plans so you do not lose sight of them in the future. The level of control and flexibility you would like to maintain over your assets is entirely up to you.  Most likely you will NOT want to cash out your old plans because there will be tax consequences for doing so. There are essentially three choices when it comes to your existing retirement plan(s):

  1. Leave the money where it is. 

    This is typically a default option for the investor who is not aware they have other available options. While leaving the retirement assets in place is acceptable, doing so might result in less flexibility, control and oversight. If you do leave your assets where they are, know that you have the ability to request a rollover at any point in the future.

  2. Initiate a direct rollover to your new employer sponsored retirement plan

    This may be an option for the investor who wants to keep things as simple and consolidated as possible. However, like leaving the money with a prior employer, a certain level of flexibility will be lost by being limited to the new plan’s investment choices. (review IRS rules to see if this option applies to your situation

  3. Initiate a direct rollover to a new or existing Traditional IRA (Individual Retirement Account) in your name.

    This option presents the investor with the most control and flexibility. Investments will not be limited to specific plan offerings and if personally managed, may lower fees. If you are someone who wants to have maximum control of your assets and choices, initiating a direct rollover to a personal IRA will be your best option.

Regardless of which option above you choose, coding the transaction as a “direct rollover” is essential to avoiding income tax penalties on the transfer of your tax deferred assets. Refer to for official rollover rules, or consult your financial advisor if you have questions about your specific situation. Contact the current plan sponsor to receive paperwork/instructions on how to initiate a direct rollover.


Profit Sharing Benefits

If your employer plan included a profit sharing benefit, this may mean you own company stock within your retirement plan and will have options associated with what to do with it. You may have the ability to distribute the company stock and receive favorable Net Unrealized Appreciation (NUA) treatment. Depending on your age, current financial situation, and cost basis in the company stock, this may or may not be the best option for you.  You may instead decide to transfer the company stock to a tax deferred account along with the rest of the retirement assets in order to defer taxation until a future distribution occurs. Talk with your financial professional to better understand your options, and as always, remember to keep in mind the risks associated with having too much concentration in one company specific stock.


The Pension Decision

This is one of the most asked questions we get from individuals who are changing jobs or transitioning into retirement – what should I do with my pension? If you are one of the “lucky ones” whose company still offers a pension, you may be able to keep it in place until retirement when you can then turn on the annuity income stream, or your pension may offer a lump sum option which would allow you to roll the lump sum value into an IRA in your name. There are a number of considerations when making this decision, such as:

  • Does your pension offer a cost of living adjustment (COLA)?
  • Do you have loved ones you would like to benefit from this asset in the event something happened to you?
  • Will you need guaranteed income in retirement?
  • Would you like to maintain some level of control and flexibility?

Be sure to consult with a financial professional to explore what pension decision is best for your situation.

Stock Options

If you have stock options with your current or previous employer, these will likely expire within a certain time frame upon termination. Make sure you understand the impact your transition will have on each stock grant. Exercising and subsequent sale of any stock options will create a taxable event, so be sure to explore your options and work with your financial advisor and tax professional in order to develop a plan that is best suited for your specific circumstance.

Next Steps

A job transition can be an exciting time that opens doors to new opportunities for your future and propel you forward in your career. Changing jobs can essentially “unlock” benefits that were previously bound by employer plan rules. Use this opportunity to learn about and take control of your finances.


If you’d like help navigating your job transition or other life event, contact us to schedule a free consultation.