What to Do If You Lose Your Job

Anyone can lose a job, for a variety of reasons, at any time. If you find yourself in this situation, you don't have to sit idly by. Take these seven steps right away to help ease the financial pain.

1. Review your severance package before you sign.

   While the deadline to sign a severance package document can vary by age, state and employer, you typically have a few weeks to accept it and a few days after signing to change your mind. You may be able to negotiate a better deal, particularly if you're an experienced manager or an executive-level employee.

   Be sure you understand the terms. Are you giving up any rights? Are you signing a non-compete clause that may limit your options for finding a new job? Look online for some guidance or talk with an attorney.

2. Apply for unemployment.

   The federal/state unemployment compensation program covers almost all wage and salaried workers. If you find yourself out of work through no fault of your own, you probably qualify. Eligibility and benefits vary from state to state. Typically, your benefit depends on your recent earnings. It's also important to note that unemployment income is taxable.

   Most states provide a minimum of 26 weeks of unemployment benefits but it could be less. Review your state’s labor employment laws for details. 

3. Look into your COBRA rights.

   If you work for a company with at least 20 employees, you may be able to continue your group health insurance for up to 18 months after being laid off, thanks to the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986. Some states provide an extension of the federal provision for smaller companies or extend coverage in certain situations. For instance, in California, you may be eligible to continue coverage for an additional 18 months. 

   You will likely be responsible for paying the entire cost of the plan plus 2 percent, so be sure to do a cost comparison with other plans.

4. Roll over your 401(k) account.

   When it comes to preserving your retirement savings, you have several choices. You can:

   • Make a direct transfer of your entire account balance to a  Rollover IRA. Your money can continue to potentially grow tax-free this way.
   • Get a check from your former employer and roll this over to an IRA. In general, this isn't a good idea because your employer will be forced to withhold 20 percent for prepayment of federal income taxes. If you're under 59 ½, you must rollover the check within 60 days or you will also be charged a 10 percent penalty. State income taxes and penalties may also apply.
   • Leave your money with your former employer. You'll still be tied to the investment choices in your former employer's plan, but you won't have to pay taxes or penalties.
   • Transfer your 401(k) assets directly to a new employer’s 401(k) plan. If you find a new job that offers a 401(k) plan and accepts transfers, you may be able to directly transfer your 401(k) assets from your former employer’s plan to your new employer’s plan. This is another tax-free option.
   • Cash out. If you just take the cash, you'll owe taxes on the entire amount, plus potential penalties depending on your age.

   This is an important decision, so weigh the pros and cons of each choice carefully.

5. Create a budget and cut your spending.

   First, figure out what you're going to live on while you look for a new job. Severance pay? Your spouse's income? Unemployment benefits? Your emergency fund? 

   Then, look at your spending. Some expenses are necessities, like rent or mortgage, utilities, and insurance. But there are usually plenty of ways to reduce your outflow while you're searching for a new job. Decreasing unnecessary spending can help you stay within your means until your income recovers.

6. See if you qualify for other forms of assistance.

   There are several tax benefits that might be available to you - from tax credits to the 0 percent capital gains and qualified dividends rate if your income is low enough. Check with a tax professional or go to IRS.gov 

7. Look for a job!

   Start your job search right away. If there are few opportunities in your current industry, work on applying your skills and experience to another one. Take a part-time job. Freelance for a while if that's an option. The more initiative you take, the greater your chances are of finding a new job.