Change of Career
Not every change of job is planned, and a sudden change in, or loss of, employment can be stressful. Some matters will require immediate attention and need to be researched and handled right away, while others will need to be addressed at some point but have a less-critical timeline.
Aside from finding a new job if you’re not yet ready to retire, there are two major financial issues that will need to be handled: your health insurance and your employer-sponsored retirement plan.
The decisions that need to be made around your health insurance and retirement plan deserve time, attention, and a little research. There are many restrictions, timelines, and nuances at play. Having a plan is key, and working with a professional who specializes in each category is truly in your best interest.
If you’re a client of Reilly Financial Advisors going through career change, reach out to your Senior Wealth Advisor today. He or she will be happy to help you get your ducks in a row. Otherwise, we hope the information below will be helpful to you.
Handling Health Insurance
Health insurance has the most restrictive timeline. Generally, work-sponsored health insurance extends until the end of the month of termination. But if you think it’s okay to wait until your current coverage ends to decide what to do, think again. Thanks to the Affordable Care Act, pre-existing conditions are no longer a concern—but timing is everything! Knowing all the available options and working through the nuances to find the option that’s best for you takes time. Here are the three main options many people will have to choose from:
COBRA – Consolidated Omnibus Budget Reconciliation Act
COBRA is a government mandate that requires employers to offer all employees access to the company’s health insurance plan at the separation of service for any reason other than “gross misconduct.” The coverage extends for up to 18 months and must be the exact same coverage that was offered prior to the separation of service. But there’s a catch—it’s expensive. You will need to pay the entire premium yourself plus an additional 2% administrative cost. If you will require insurance for longer than 18 months, or simply feel that COBRA is too expensive, there are options. Did we mention that COBRA is expensive?
Switch to a Significant Other’s Plan
If you’re married or in a domestic partnership, the simplest solution may be to just switch to your significant other’s health insurance as a dependent. Because being laid off counts as a qualifying event for a special enrollment period, you won’t have to wait for the open enrollment window on your significant other’s insurance. The transition is fairly simple, but be sure to speak with a representative from both insurance companies to ensure that there is no gap in coverage.
Health Insurance Marketplace
If your spouse or partner doesn’t have employer-offered health insurance, your best solution might be to look for coverage through the health insurance marketplace.
To do this, go to www.healthcare.gov. There, you’ll create an account and fill out an application. You can choose from multiple carriers and types of plans and balance your premiums with the coverage you need. Once you have filled out an application, you’ll find out if you qualify for savings on your monthly premiums and out-of-pocket healthcare costs. You’ll also find out whether you qualify for special programs like Medicare or the Children’s Health Insurance Program. After an employer-sponsored health insurance plan, coverage from the marketplace will be your least expensive option.
It bears repeating that timing is everything. You’ll want to avoid a gap in coverage, and different programs have different but very specific timelines. There are also more subtle rules to understand. For example, if you choose COBRA, you can’t change your mind and switch to the open market until the next open enrollment period. Do your homework and make the right choice the first time!
Handling Your Retirement Plan
Once you have decided on health insurance, it’s time to decide what to do with your employer-sponsored retirement plan. Maybe it’s a 401(k), a 403(b), or even a 457. By and large, they all work very similarly—but you should speak with an experienced financial professional to help determine what options are available and which is right for you.
Generally, you’ll have three options:
Leave It Where It Is
This is simple—just don’t do anything. While this is the easiest solution, you may be subjecting your retirement funds to higher fees and limiting your investment options.
Roll the Funds Over to Your New Employer’s Sponsored Plan
The main benefit of this option is that you will have access to plan loans. Loans are not allowed in IRAs or plans sponsored by a prior employer, so if you feel that you may need to take a loan against your retirement, this is your best choice. The drawback is that most employer-sponsored plans have higher fees and a limited investment lineup. Be sure to check with the new provider to be ensure this is an option, as not all plans allow rollovers.
Roll the Funds Over to an IRA (Traditional or Roth*)
Rolling your old account over to an IRA has three main benefits:
- If selected carefully, this is your lowest-cost option.
- This option will give you the broadest selection of investment options.
- Once you have one IRA account, you don’t need to open another. You can continue to consolidate all your funds into the same account moving forward. Really, the only reason to not choose this option is if you believe that you may need access to a 401(k)/403(b) loan in the future.
*Note: If you have both pretax (traditional) and post-tax (Roth) contributions in your 401(k)/403(b) account, you will need separate IRA accounts because the tax treatment and rules on distributions are different.
It’s important to note that if you have an outstanding 401(k)/403(b) loan and you separate from your job, regardless of the reason you will be required to pay the loan back, in full, 60 days from your separation date. Any balance not repaid will be taxed as a distribution at ordinary income rates. If you are under the age of 59 ½, there is an additional 10% penalty.