Managing Your Finances As You Change Jobs

Starting a new job brings new opportunities—and a lot of financial issues to consider. Follow these steps to get the most out of your position with a new employer.

1. Add up any benefits you leave behind.

   You likely have certain benefits in your current job, such as health insurance, life insurance, a retirement plan match, stock options, paid vacation, sick or family leave, or child care assistance. Add up your current benefits to determine what they're worth. As you compare these benefits with those offered by another employer, you'll better understand the total compensation packages and the differences between them.

2. Consider the benefits you take with you.

   If you have stock options in your current company, you may have to make choices that involve complex tax issues. Talk with your tax or financial advisor and plan ahead. You usually have only a short period of time after you leave your job to exercise options.

3. Decide what to do with your retirement plan.

   Your employer-sponsored retirement plan—such as a 401(k)—is an important benefit; what you do with it when you change jobs can significantly impact your ultimate retirement security. You have several options: rolling over to a new employer's plan; rolling over to an IRA; leaving your money in your former employer's plan; or cashing out. Be sure to consult with a tax advisor before cashing out of your 401(k): Not only will you be losing money in taxes and penalties, but you'll be raiding your retirement assets. Weigh the pros and cons of each choice carefully before you make a decision.

4. Negotiate your pay.

   There are a number of issues to consider when negotiating your pay—your wages or base salary, bonus plan, relocation costs, signing bonus, or severance package. If you're relocating to a more expensive area, you might ask for a cost-of-living adjustment. Of course, perks like signing bonuses and severance have a lot to do with the economy and the type of industry or company you're considering.

   If you're having trouble agreeing on a salary or other terms, you might suggest alternatives, such as extra vacation time or a work-at-home arrangement. It doesn't hurt to ask!

5. Negotiate your benefits.

   Benefits can include a retirement plan and health, disability , and life insurance. Other perks could include education programs, legal services, training and development, commuter and child care subsidies, discounts, and financial counseling.

   The value of these extras can represent a significant portion of your salary, meaning you'd have to spend a substantial amount of your own money to pay for them on your own. So be sure to find out as much as you can about what's offered.

   Generally, when a fringe benefit is provided as a requirement of employment or for the convenience of the employer (e.g., meals, lodging), the value of the benefit will not be included in the employee's taxable income. In addition, other benefits, such as tuition or use of a fitness center, may be excluded from your income, provided they follow rules set by the IRS.

6. Negotiate relocation costs.

   Often a company will reimburse the costs of relocation so you're not overburdened with expenses when taking a new job. If you anticipate relocation costs, consider expenses such as help selling your old home, house-hunting costs, and interim housing and mortgage expenses, including closing costs, transaction fees, and moving expenses

   If you pay for your own relocation, many of these costs may be tax-deductible, provided you satisfy two tests. First, your new job must be at least 50 miles farther from your old home than your previous job. If you had no previous job, the new job must be at least 50 miles from your old home. Second, you must work full time for at least 39 weeks during the first 12 months after you move. Check with your tax advisor for more details.

7. Review your new financial situation.

   Your new situation may call for a new approach to saving and investing. Consider taking the following steps and discussing them with a financial advisor:

   • Start making regular contributions to your new retirement plan as soon as possible.
   • Review your investing goals and revise your asset allocation if needed.
   • Pay off debt.
   • Consider purchasing additional insurance, such as long-term care insurance, if your new employer doesn't offer it.
   • Review your disability insurance needs.
   • Obtain a mortgage if you're relocating.
   • Decide between a flexible spending account and a health savings account, if both are offered.
   • Designate beneficiaries for any new or changed accounts.
   • Review your wills, trusts, and other estate planning documents.

   If you're relocating to another state, take the time to research state and city tax laws. Income tax, property tax, and even sales tax can affect your cost of living.