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Job Change is a Prime Time to Pump up Your Finances

Starting a new job is a major life change – and a good time to reassess your financial state of affairs. It may also be an ideal time to ramp up your investment plan to build wealth for the future.

Several tasks may await you when you start a new job. You may need to select your benefits, assess your tax situation, and – if you’re moving to a new city – make new living arrangements.

If your new position comes with a salary increase, it may also be an excellent time to assess your finances and devote more money to your investment plan.

Here are some of the considerations you may face with a new job:


Choose Your Benefits

1. Insurance

If your new employer offers insurance coverage like health, dental, vision, and life insurance, you’ll need to decide which insurance plan is right for you and your family. If your spouse already has comprehensive insurance coverage through his or her employer, you might want to compare those plans with the new ones you’re being offered to see which coverage is the best and most cost-effective.  If you’re happy with your spouse’s coverage, you might consider forgoing health insurance through your own employer in order to increase your take-home pay. However, if your employer offers a cost-effective life insurance policy, you should seriously consider enrolling in that to provide financial protection for your family.

2. Other Benefits

Find out what other benefits may be available through your new employer. Can you get help with transportation or parking expenses? Does your employer offer a health savings plan? What about stock options? Are there any areas where you can receive discounts, like fitness center fees, movie tickets, or other special events? You should find out as much as you can about the benefits available through your new employer to decide which may be useful for you.

If your new employer offers access to a credit union, be sure to look at interest rates, benefits, and fees – the benefits of credit unions often more than compensate for the inconvenience of changing banks.

You may also have some clean-up to do regarding your benefits back at your old job. If you have paid time off that you haven’t used, make sure to find out if your state requires your old employer to compensate you for unused PTO, and alert your human resources department to ensure that you don’t leave that money behind.

 

Enroll in Your 401(k) Investment Plan

If your new employer offers a 401(k) plan, that’s an ideal way to build your investment and retirement savings. Generally, money contributed to a 401(k) is deducted from your taxable income, although you would be taxed later when you withdraw money during retirement. (See How to Get Your Retirement Savings Back on Track.)

Moreover, many firms with 401(k) plans will match your contributions up to a certain percentage. You should take full advantage of any match your company offers by contributing as much as you can – your employer’s matching contribution is free money that will grow tax-deferred! If your company offers a matching contribution of up to 5% percent of your pay, that’s the equivalent of a 5% raise. Try to contribute enough to take full advantage of the company match so that you’re not leaving any money on the table. 

 

Dealing with Your Old 401(k) Account

If you also had a 401(k) at your old job, check to see whether your former employer requires you to close it out. They may not – but leaving your money in the 401(k) at your previous job might expose you to fees that were covered when you worked there but that your old employer won’t cover now that you’re no longer there. Consider, too, whether you want to keep track of multiple 401(k) plans; you may find it easier to roll your old plan over into your new employer’s plan or into an IRA or Roth IRA.

It’s important to look at your options when deciding whether to rollover.  Compare the investment options, fees and expense, service options and features of the different plans.    For example, different requirements apply to required minimum distributions and early withdrawals before age 59 ½. (See: Changing Jobs? What to Do with Your 401(k).)

 

Tax Considerations

1. Withholding

If you’ve already earned more than your Social Security wage base ($128,400 for 2018)i at your old job, your new employer won’t take that into account when they figure your withholding. You might need to adjust your withholding to ensure that money is available to you with your first paycheck, rather than letting the government hold onto it until you file your tax return for the year. And don’t forget that severance pay, payments for accumulated PTO, and unemployment are all considered taxable incomeii. If they’re substantial, you’ll want to take them into account when calculating withholding.

2. Deductions

If you itemize, you should know that some job-related expenses may be harder to deduct starting in 2018. Expenses for job searches, moving (except for members of the armed forces) and costs such as travel, membership in professional organizations, and business-related entertainment have new rules. If you’ve previously deducted such expenses, it would be a good idea to go over the new rules with a tax professional.  (See: How Will the New Tax Law Affect You?)

However, your employer may be able to reimburse some of those expenses without that reimbursement counting as income.iii Talk to your new employer about whether this is an option for you. If your new job requires you to relocate, you should also be aware of changes to the mortgage interest deduction before purchasing a new home.

 

Building Wealth

One of the biggest temptations with a new job and a bigger income is to start spending more money. You should resist this temptation.

Instead, adjust your budget in ways that help you save and invest more, perhaps by opening an IRA in addition to your 401(k), or starting a college savings plan if you have kids. (See: The Power of Pairing Your 401(k) with a Roth IRA)

When you’re setting up direct deposit with your new employer, take the opportunity to set up automatic savings and investment transfers as well. If you already have an automated savings or investment plan, consider adjusting your contribution higher to take advantage of your higher income. (See: Start Building Your Nest Egg for Just $50 a Month)

 

Making the Move

If you’re moving for work, you can’t avoid additional expenses. However, you can compare the costs of different options: for instance, renting a smaller, temporary home and storing some of your possessions until you find the right place to buy, rather than spending money on a long-distance house hunt.

If you’re moving to a more expensive city, you may be able balance out your housing expenses by relying on public transportation – especially if your employer offers help with transit costs. Even if you’re not moving, a new commute might offer the opportunity to adjust expenses like transportation and gym membership. You can take advantage of the new routine associated with your new job to reexamine expenses you’ve taken for granted and ask yourself if they’re still necessary.

A new job can be an exciting and challenging opportunity – as well as the perfect time to get your financial life in order.

 

 

 

The concepts presented are intended for educational purposes only. This information should not be considered investment advice or a recommendation of any particular security, strategy, or product. At Thrivent Mutual Funds, we recommend you consult your tax advisor to make sure you’re getting the most out of your investments. Thrivent Mutual Funds and their representatives cannot provide legal or tax advice.


i See the Social Security Administration’s Benefit Base Chart: https://www.ssa.gov/oact/cola/cbb.html.

ii See IRS Publication 525, Taxable and Nontaxable Income: https://www.irs.gov/publications/p525

iii See IRS Topic No. 514 – Employee Business Expenses: https://www.irs.gov/taxtopics/tc514

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