You’ve made it through the long process of applying, interviewing, and landing the big job. It’s a fresh start professionally, and it can be financially, too! Here are five things to do with your money when changing jobs.
1. Run the numbers.
Hopefully your job change comes with a raise in pay. Plug the new numbers into your monthly budget to really gauge the impact. Will you be able to save and invest more per month? Will you be able to take that trip you’ve always wanted to go on? Maybe the switch will mean a longer commute. If so, you’ll need to budget more for gas and auto maintenance. What’s the dress code at your new place of employment? You may need to buy some new clothes and budget for dry cleaning expenses. You also need to figure out your new pay schedule. Are you paid weekly, twice monthly, or biweekly? When will your first paycheck arrive? If you are taking time off between jobs, you’ll need to figure out how to cover those weeks when there’s no money coming in.
2. Consider the tax implications.
If you do get a bump in pay, you may be bumped to a higher tax bracket. Use the IRS Withholding Calculator to perform a quick “paycheck checkup.” The Calculator will help you identify your tax withholding to make sure you have the right amount withheld. This information will come in handy so that you know how many allowances to claim when your new employer asks you to complete a Form W-4. The goal is to come as close as possible to paying in the right amount so you don’t owe any money come tax time.
3. Fund your future.
Carefully consider your new employer’s retirement plans. Do they offer to match your retirement contributions? Try to match at least up to the match percentage. If you contribute pretax, your taxable income could be lowered, and that could have a big impact on #2 above!
4. Roll over your old 401(k).
If you had a retirement plan with your former employer, it will stay there until you roll it over to another plan. Advisors recommend rolling your 401(k) into a traditional IRA account so you won’t be penalized or taxed for moving the funds. Advisors caution against cashing out your 401(k). A plan participant leaving an employer typically has four options and may engage in a combination of these options, each choice offering advantages and disadvantages. The four options are: Leave the money in his/her former employer’s plan, if permitted, roll over the assets to his/her new employer’s plan, if one is available and rollovers are permitted, roll over to an IRA, or cash out the account value. You’ll face a 10% penalty if you cash out before retirement age. If you take early distribution, you’ll only get about 70 cents on the dollar. In most cases, there’s no real rush to roll over the 401(K), but you’ll want to ask if your former employer requires you to move the money by a certain deadline.
5. Consider the “perks.”
Your new job may allow you to make pretax contributions to a medical or child care fund. You may also have special group rates on life insurance, cellphone plans, or wellness programs. These perks can also impact your overall budget.
Starting a new job brings feelings of excitement and apprehension all at once. Making these five money moves can help get you started on the right financial foot.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.