Starting a new job is exciting, with different work responsibilities, colleagues and a fresh start. That fresh start means making financial decisions involving your retirement plan, tax withholding and insurance policies. These decisions can have a big impact on your financial health now and down the line.
Here are things you should consider as you start your new job:
1. Retirement plan
Rolling over your 401(k) to an IRA or your new employer’s plan when changing jobs can be a savvy move. If you leave your 401(k) plan with your previous employer you might forget it’s there, and you’ll have more control over the money if you roll it over to an IRA or your new employer’s qualified plan. If you decide to roll over, figure out the plan’s true balance first. Employer matches have a vesting schedule. You may think you have more in the account than is there, if you aren’t fully vested.
Roll that money over into an IRA account when you leave. You can choose a traditional or Roth IRA. With a Roth IRA, you pay tax on the conversion. But the money will grow tax free and you won’t pay taxes on distributions when you retire. This is a good option if you think you’ll be in a higher tax bracket in the future and if you can afford to pay conversion taxes now.
If you cash in the retirement plan and you’re under age 59 1/2, instead of directly moving it to another qualified plan, you’ll have to pay penalties in addition to owing taxes. Instead of cashing in your retirement plan, think about rolling it over to an IRA or your new employer’s plan.
With your current job, opt into the retirement plan and make sure you’re saving enough to get the maximum employer match, said Terrance K. Martin Jr. PhD., an assistant professor of financial planning at University of Texas Rio Grande Valley. If the company automatically enrolled you in the plan, make any adjustments to your contributions so you’re saving as much as you can.
2. Disability insurance
Ask for details about your company’s disability policy, because there are many types. The most common are short-term and long-term disability. Both are helpful. Short-term disability covers you if you’re sick or injured, unable to work in the short term, often up to six months. You’ll get some or all of your salary as a benefit during that time period, though there may be an “elimination” period, otherwise known as a waiting period.
Long-term disability starts when the short-term policy ends, offering a portion of your salary. It may have a maximum benefit amount. With both policies, you might have to be employed for a certain amount of time for the policy to take effect. You’ll want to find out what types of sicknesses and injuries are covered under a disability policy, to see if it has to be work-related.
Group plan prices are less expensive than buying disability insurance on your own. That said, if the group plan doesn’t meet your needs or it’s not offered, consider purchasing it elsewhere so you’re protected.
One of the most confusing forms you’ll have to fill out is the W-4, the government form asking what the company should withhold for tax purposes. “Everybody looks forward to that tax refund in the spring,” said Martin. “But it represents an interest-free loan for the government.” Most people tend to over-withhold, while ideally you should reach tax season having paid just the right amount. Instead of following the instructions on the W-4 form, Martin advises you to use the irs.gov withholding calculator, which will help you predict your taxes based on your pay stubs. An accountant or financial planner who does tax work might also be helpful in advising you on withholding.
4. Flexible spending
Flexible spending accounts are a great way to save on taxes. If you have a child under 13, figure out your childcare costs, so you can pay them with pretax money. You can do the same with out-of-pocket healthcare costs. You can only enroll in flexible spending when you start a new job, during open enrollment or if you have a qualifying life event like getting married or having a baby.
Those forms you fill out when starting a new job may be annoying and a lot of work, but they have potential to affect your financial life and help you save for the future. For more information and financial tips, check out Sterling Peaks Insurance
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