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Switching Jobs? Look Before You Leap

1. Evaluate retirement plan options. If you are participating in a retirement plan at your current job, you will face some interesting options if you leave. In general, the vested benefits in a 401(k) plan or other qualified plan are portable or can be accessed upon termination of employment. Specifically, you might:

*Roll over a lump-sum distribution to a new employer’s plan or an IRA. With a trustee-to-trustee rollover, there is no income tax withholding on the distribution.

*Leave the funds in the plan. The amounts are subject to the usual rules for withdrawals (e.g., distributions prior to age 59½ are generally subject to a 10% penalty tax in addition to regular income tax).

*Take distributions in cash and pay the resulting income tax plus any penalties.

2. Protect pension plan assets. If you are entitled to a pension, you may not have access to the funds until you retire, even when you switch to a different job. Other plans may permit distributions of vested benefits. Consider all the implications.

3. Secure insurance coverage. It is generally recommended that you avoid any lapse in health insurance coverage. If there will be a waiting period with a new employer’s plan, you can continue coverage from your old employer through COBRA (short for the Consolidated Omnibus Budget Reconciliation Act of 1985). Under COBRA, you usually have to pay the premiums yourself, but it could be well worth the peace of mind. Similarly, see how other insurance benefits will be affected.

4. Review stock option and grant offerings. A stock option enables you to buy company stock at a specified price while a grant allows you to receive stock at no charge. Determine the value of grants and stocks. If you will be leaving a sizable amount of money on the table, you may want to reconsider the job switch or negotiate comparable benefits from your new employer. Consult with a tax expert regarding the exercise of stock options.

5. Determine your FSA status. With a flexible spending account (FSA), you contribute to an account to pay health care or dependent care expenses on a pretax basis. When you leave the company, you will have to forfeit any unused finds in your FSA. On the flip side, the employer generally bears the burden for expenses if you have already collected on claims that have exceeded your payroll contributions.

Reminder: Before you make your decision, make sure you factor in the value of employee benefits. This is an important consideration that should not be overlooked.

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