Tailoring Your Transition: Financial Considerations for Job Changers
Have you ever contemplated a job change, whether it’s moving to a new location, a new company, or a new industry altogether? If you have, you wouldn’t be alone in that sentiment as a survey conducted by the Pew Research Center in July 2022 suggests that 22% of American workers say they are “very or somewhat likely to look for a new job in the next six months”. Maybe you’re not just thinking about it, but you actually find yourself in the middle of a job switch. How exciting, yet stressful, is this period of transition?
The excitement that comes with a job change is valid and should be embraced! Whether you’re getting a promotion or simply moving to a better situation for you and your family, securing a new job is worth celebrating. However, the stress that comes with the change is equally as valid. There likely will be an influx of questions swirling around in your head: “What do I do with my current 401(k) balance?” “What do I do during my new employer’s open enrollment period?" “How can we afford a new home?” and so on.
Aurora Financial Strategies can guide you through this transition, helping you find the solutions to your questions so that this process isn’t daunting on you and your loved ones. Our mission is to help our community, clients, family, and friends create the life of their dreams, free from anxiety and stress about money. Let’s discuss how Aurora is able to help you during a time of change.
Old Retirement Plans
When you leave an old job, you are also leaving your retirement plan with your former employer’s plan provider. There are a handful of options you can choose from when deciding what to do with this retirement plan balance:
Option 1: Roll your balance over to an IRA and/or a Roth IRA
Our most common recommendation would be to roll over your retirement plan balance into an IRA and/or a Roth IRA. Multiple old plans are hard to keep track of, maintain, and allocate correctly across the board. For simplicity’s sake, we often recommend taking this rollover step to consolidate retirement accounts. Another reason we suggest consolidation is 401(k)’s and other group plans have a rather limited number of investment options to choose from. By allowing our team to make investment selections with you, we can better diversify your account holdings with investments we believe in. Additionally, we can split up the funds between an IRA and a Roth IRA according to how they were originally allocated in your plan.
Option 2: Roll your balance into your new employer’s retirement plan
If your new employer offers a retirement plan, you can roll your old retirement plan into the new one once you become eligible to do so. Just as I mentioned above, some people enjoy having their money in as few spots as possible, so they may want to keep all of their retirement savings within the same account. If you are one of these people, a member of Aurora can help you contact your old plan provider and ask them to send your funds to the new plan provider. This method of consolidation would be most appropriate for those clients who complete backdoor Roth IRA contributions.
Option 3: Leave the money where it is
If you wish to leave the money in the account and withdraw from it at a later date, you certainly can, as long as you have at least $5,000 saved to the retirement plan. If you are retiring between the ages of 55 and 59 ½, it may make sense to keep the money within its current plan as you will avoid any early withdrawal penalties (this is often known as being age 55 and separated from service). Overall, this is the simplest of the possible choices, but it does leave you with the least amount of control.
Option 4: Cash out your remaining balance
The last remaining option would be to request a check for the full remaining balance in the plan account. With this option, you can take the money and allocate it as you please between investing, saving, and spending. However, there are some potential consequences with this choice. You will pay both federal and state taxes on the money you withdraw, but you may also have to pay a 10% withdrawal penalty if you are taking the money before you are 59 ½ years old. We do not suggest this option frequently unless you are 59 ½ or older or if you have an immediate need to tend to.
Open Enrollment with Your New Employer
Aurora Financial Strategies can help you enroll in your new employer’s benefits package when it comes time for you to do so. Benefits packages may look different from one employer to the next, so a member of our team can review the new benefits package with you to help decide what you should and should not participate in as not all benefits are needed by everyone. Some benefits that may change are life insurance and its suitability, 401(k) match percentages, the ability to use or the loss of a Health Savings Account (HSA), and more.
We can also help you set up your new retirement plan. From determining how much of your paycheck to save towards retirement to selecting the account’s investments from the allotted pool of options, the Aurora team will be delighted to help!
Finding a New Home
A new job can sometimes mean a new city, and with that, a new home. Looking for a new home can be challenging, sometimes even overwhelming. Here are some common questions we get asked by clients searching for a new home: “How much can I afford to spend on a new home?” “What will my property taxes look like?” “Are there realtors around that I can trust?,” etc. Do you find yourself wondering about similar questions? Fear not, as Aurora has the knowledge, as well as the connections, to help make this process as seamless as possible.
The Aurora team can help you determine how much you can afford to spend on a home based on your current finances. Using your savings, current level of income, the market’s current interest rates, and how much money you’d make from selling your current home (if you have a house to sell,) we can calculate how much you are able to spend, as well as how big of a down payment you should use. We would also be able to help you research how much your property taxes would be depending on where you are moving to.
What about a realtor though? Don’t worry; we’ve got you covered there too! Aurora has several connections with realtors across central Indiana (I bought my first home recently using a realtor I met as an employee of Aurora!). With our firm servicing clients in multiple states, the Aurora team has developed relationships with real estate professionals across the country as well. The connections don’t stop with realtors though as we also know loan officers, mortgage originators, home inspectors, and property insurance agents. Let us save you time and money by pointing you toward trusted professionals within your area.
Budget/Lifestyle Adjustments
One of the biggest ways Aurora can help you get acquainted with a job change is by helping you adapt to changes in budgeting. Whether your household will be bringing in more or less money, or if your cost of living has drastically changed, the Aurora team is here to help. Adjusting to a new budget may require our team to create or amend a financial plan for you and your family. We can help you figure out how much money you should invest, save, and spend each month. We are also able to help you determine how best to fund any goals you may have in mind. Our goal is to help you feel as comfortable as possible with your finances so that you have one less thing to worry about as you begin your new role.
Summary
Many people view times of change as difficult, stressful, and even tiring. We don’t want you to feel that way if you’re changing jobs. The Aurora team wants to help make your transition as smooth as possible. By helping you decide how to manage both new and old retirement plans and benefits, helping you get connected to professionals involved in the home buying process, and creating a financial plan for you so that you can easily adjust to potential changes in budgeting, Aurora Financial Strategies will assist you during a time of change.
Investment Advisory Services are offered through BCGM Wealth Management, LLC dba Aurora Asset Management (Aurora). PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance. Advisory services are only offered to clients or prospective clients where Aurora and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Aurora unless a client service agreement is in place.