Moving to a new employer offers a fresh start to your professional life. You also have a great opportunity to update your financial planning strategy.
First off, do something with your old 401(k) account. Contact your former employer to find out about your options for your old plan. In some cases, you may be able to leave your balance there indefinitely if you choose; however, some employers may make you “roll” your account balance out of their plan (roll being the financial industry term for taking your money out and placing it in another retirement account).
Options for where to put your retirement savings are most often an IRA rollover or a rollover to your new employer’s 401(k) plan. Ultimately, your decision boils down to whether you prefer ease of use or maximum personalization.
Rolling your money to your new 401(k) plan will make your life easier because you’ll have fewer accounts to research and manage. You can assess your new plan by looking at the 6 features that make a good 401(k). If the new plan meets your standards, you’ll need to make sure the new 401(k) will accept your rollover. Not every plan will.
On the other hand, if you want the freedom to choose from most of the mutual funds available on the market, an IRA rollover will allow you to build the most personalized lineup. But it also requires more dedicated time for research – and you’ll have two accounts to track and manage. With either choice, check the fee disclosure to make sure you understand what you are paying.
Once you know what’s going on with your old 401(k) funds, it’s time to update your 401(k) account strategy. Revisit your asset class allocation and do some fund research to decide where your contributions will go. Revisit the benefits and disadvantages of Roth and traditional contributions with your new salary and tax situation in mind.
Most importantly, increase your 401(k) contributions. Continue to try to reach at least a 10 percent contribution amount to reach your goals. The number one thing you can do to improve your retirement situation is save. While we’re on the subject, take note of the employer match and vesting schedule at your new company.
Check out the other benefits your new employer offers. There may be something unexpected, like a reimbursement to help you buy fitness gear or start a new hobby. Some employers offer betterment programs like personal training in the company gym or Weight Watchers meetings during work. And you could be eligible for discounts on your cell phone service and/or purchases from some retailers.
The big-picture items to explore are your health, dental and vision insurance and flexible spending account options for medical and dependent care expenses. If you have a partner, compare your new benefits with theirs. You probably have a small window during which your partner’s employer will allow benefits changes because of your job change.
Lastly, if you’re making a significantly different salary at your new job, it’s time to adjust your budget to fit your new circumstances. Begin by adjusting your tax withholding. The IRS provides a calculator to help you approximate the right amount to withhold – your goal being to break even at tax time. If you’re making more money with your new job, be conscious of the need to minimize lifestyle inflation – spending more money simply because you make more money. Starting a new job offers both excitement and uncertainty. Maintain control over your financial situation with a sound strategy that covers both the near-term needs as well as the longer-term goals.
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.