Helping You Shape Your Future
Tips for Making a Smooth Financial Transition While in Career Transition
By Donna S. Cates ~ Sr. Financial Advisor, CDFA, CRPC
donna_cates@ml.com
Before you leave your job:
Tie Up Loose Ends
- Consider repaying any outstanding plan/401(k) loans
- Keep your personal contact information updated with the plan administrator
- Locate your most recent account statements
- Review beneficiary designations
- Check your health insurance coverage
- Review plan loan rules
- Understand your vesting status
- Remain invested but assess your current allocation for risk exposure
- Ensure you are properly diversified amongst stocks, bonds, and cash equivalents to protect against market volatility
- Reassess your overall financial situation whenever you make a major life change
Assess Your Current Situation
After you’ve left your job:
Assess Your Living Expenses
- Determine how much money you must have to pay for the ÒnecessitiesÓ if you are unemployed
- Deposit your severance check into an interest bearing money market account separate from your regular checking account with the goal of keeping enough to cover your essential living expenses for six months
- Evaluate the following options concerning your employer-sponsored retirement plan assets as you don't want to leave them unmanaged or idle
- Roll it over to a traditional IRA
- Possible Advantages: preserves tax-deferred growth potential; avoids immediate taxes and penalties; gives you access to advice and guidance; offers a wider selection of investment options
- Possible Disadvantages: loans are not available against an IRA; may be charged an annual fee; you only receive protection from creditors' claims in event of bankruptcy
- Roll it over to a new Employer's Plan
- Possible Advantages: same as for rollover to a traditional IRA plus loans may be allowed, broad protection from creditor's claims, typically no fee for investment transactions
- Possible Disadvantages: waiting period may apply; waiting period before new contributions are permitted; may lose access to desired investment choices, new plan may not accept rollovers; may limit future distribution options for your beneficiaries
- Leave it where it is now
- Possible Advantages: same as with rollover to a traditional IRA plus maintain current investments; preserves option for future rollover to IRA or new employer's plan; preserves special tax treatment on company stock
- Possible Disadvantages: account value must be at least $5,000; limited investment options, no new contributions permitted, no new plan loans
- Withdraw it
- Possible Advantages: get immediate access to assets, reduced by taxes and penalties if younger than 59 _; may qualify for special tax treatment of net unrealized appreciation (NUA) of company stock
- Possible Disadvantages: forfeit tax-deferred growth potential; withdrawal subject to immediate 20% tax withholding; subject to additional federal and state income tax based on tax bracket; possible 10% early withdrawal tax penalty if not yet 59 ½.
If you'd like advice or guidance on how to manage your financial well-being during transition, contact
Donna S. Cates • Sr. Financial Advisor, CDFA, CRPC
(205) 298-7446 or donna_cates@ml.com
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