Changing Jobs and Your Benefits
In today’s world, the workplace is a revolving door of workers, often times with employees coming and going on a consistent basis. When an employee leaves a company, what to do with the accrued benefits seldom pops into an employee’s head. An employee’s focus is on either finding a new job or the excitement of a new position. What should an employee do with their 401k or flexible spending account and health savings account? Most employees who change employment know they should do something, but they procrastinate and their accrued benefits are not handled until years later. Below are some thoughts to consider for the benefits listed above.
When you leave a job, you have four options for your 401k. Each option has its advantages and disadvantages, and you may engage in a combination of these options.
- Leave the money in his/her former employer’s plan, if it is permitted
- Roll the assets to his/her new employer plan, if one is available and rollovers are permitted
- Roll the funds to an IRA
- Cash out the account value
If you decide to leave your money in your former employer’s plan, you should be aware that most plans will need a minimum of $5,000 to do this. If your balance is below that amount, the company may issue you a check or the plan provider may assist you in opening an IRA so that you can move the funds into an IRA account.
Before you decide to leave the funds in the plan, you should consider the fees that will be charged. You also will need to decide If you are happy with your fund options and if you are comfortable managing these dollars on your own. The other consideration you should note is that if you leave the dollars in the plan, you will no longer be allowed to make contributions to the account.
If you are starting a new job, you can check with the new plan provider to see if they allow rollovers from other plans. If your new plan does allow rollovers, you have two options for completing this: a direct or indirect rollover. With a direct rollover, the administrator of your old plan would complete a direct transfer with the new administrator. For an indirect rollover, the old plan administrator would issue a check to you for you to provide to the new administrator. You would need to complete this rollover within 60 days to avoid the transfer being considered a distribution which would affect your taxes and potentially a penalty for an early withdrawal, (prior to age 59 ½). Consolidation of 401k accounts makes sense if you are happy with the new investment options and it is cost-effective.
If you decide to open your own IRA or have a current IRA account, you will need to complete either a direct or indirect rollover, (mentioned above), to move the funds into your account. This may be your only option if your new employer doesn’t offer a retirement plan or the plan does not accept rollovers. The biggest advantage of rolling your 401k into your own IRA is the freedom it allows when it comes to the investments you select. Because you are in control of the account, you have the flexibility to allocate your dollars into the funds of your choice at any time.
You also have the option to cash out your account balance. You should be aware that if you are below the age of 59 ½, the IRS may charge you a penalty of 10% for early withdrawal and the funds will be subject to income taxes. There are a few situations where you will not be subjected to an early withdrawal penalty, please consult your financial professional to discuss these special situations. You should also be aware that by cashing out your account will reduce your savings for retirement and may force you to work longer than you originally planned.
Flexible Spending Account
If you are contributing to a flexible spending account and have a job change to a new company, your ability to use those funds will depend on whether you are eligible for and choose to use COBRA. If you do use COBRA, you will not be able to make further contributions and only have the ability to use the funds that are currently in the account. If at the end of your COBRA coverage, you still have funds remaining in the account, you will forfeit those dollars to your employer. It should be noted that your FSA can not be used to pay your COBRA health insurance premiums.
Health Savings Account
The best thing about a health savings account is that it belongs to you whether or not you continued to work for an employer. With this account, you can keep all of the money in the account and these dollars can be used for COBRA premiums and/or other medical costs.
ConclusionIf you are considering a job change or find yourself changing jobs unexpectantly and have questions on how to approach any of the above items, please go to my website, https://michaelrebischkefa.com/, to schedule a 15-minute call to discuss. I have worked with employees who have either changed jobs or are considering a job change and I am able to provide insight and items to consider as you go through your job transition.
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