Get the most out of your health insurance, while you've got it. Maintaining consistent insurance coverage can be one of the toughest challenges. If you can, schedule medical, dental, and eye doctor appointments before you leave your job. Generally, your current employer must allow you to extend health and dental coverage for up to 18 months after you leave, under the COBRA Act of 1986. The catch is, you pick up the tab for the coverage—and it isn't cheap. In some cases, you might be better off getting a new policy on your own. And there are strict rules for carrying COBRA coverage. Look for details on the Department of Labor's website.
Life and disability insurance is also important. If you won't have employer coverage for a while, decide whether to purchase new insurance or convert your employer's group policy to an individual policy. If your spouse works, check whether his or her coverage meets your needs.
Preserve your 401(k). When you leave your job, you'll have the option of receiving a cash payout from your 401(k) plan. Don't; it would be a big mistake. The money will be subject to federal and state income taxes. In most cases, if you cash out before age 59½, you're hit with an additional 10 percent penalty. At the highest federal tax bracket, you could lose more than 45 percent of the pot. Ouch.
A smarter idea is to roll over your entire plan into an Individual Retirement Account. If you choose this option, make sure the money is transferred directly from the old plan to the new IRA. If your employer makes the check payable to you, the company is required to withhold 20 percent of the money for tax purposes. But be careful—this is where many people mess up. If your employer sends you a check for the remaining 80 percent, when you open your IRA, you must put up the missing 20 percent to avoid the penalty for taking a nonqualified distribution. You'll get it back when you file your next federal tax return—but if you can't post the 20 percent, it's included in your gross taxable income. Importantly, if you don't roll over the money you receive within 60 days, you're subject to the 10 percent penalty for an early withdrawal as well.
If your new employer's plan accepts rollovers, you can transfer the funds directly there. Many employers make you wait a certain period of time. If your account has more than $5,000, you can keep your funds in your former employer's plan, where they'll continue to accumulate tax-deferred. Later on, you can move them directly to another qualified plan without penalty. By then, with luck, you'll be well on your way to the career you always wanted.