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Covestor Radio, EPN News, Investing

Covestor Radio 22: Money Milestones – Job Transition

Posted: November 17, 2014 at 6:44 am   /   by   /   comments (0)


Kimberly Clouse, Covestor’s Chief Client Advocate and Advisory Board Chair joins Covestor Radio continuing their discussions around Money Milestones, those life events that should prompt a review of someone’s financial situation. This episode’s topic is Money Milestone of changing jobs.

Covestor Radio is a show about money milestones and investing for your future and brought to you by Covestor, an online marketplace for investing.


As a reminder, Money Milestones are those life events that should prompt a review of someone’s financial plan and investments. And a job transition is definitely a Money Milestone. Over 4 million people switched jobs in August of 2014.

The U.S. Department of Labor Bureau of Labor Statistics measures “Quits” and “layoffs and discharges.” Quits are generally voluntary and initiated by employees, while layoffs and discharges are generally involuntary separations initiated by an employer.  In August 2014, there were 2.5 million quits and 1.6 million nonfarm layoffs and discharges, for a ratio of 1.6.

  • How can making a job transition affect someone’s financial situation?
    1. Roll savings into an IRA
    2. Leave savings in your former employer’s plan
    3. Transfer savings to a new employer plan, assuming that they have one
    4. Take cash
  • What are some of the things to consider with the four options?

All of the options except taking cash  allow you to keep the potential of tax-deferred growth.  If you leave your retirement savings in your former employer’s 401k plan or transfer the balance to a new 401k plan, your investment choices will be limited to those that your employer provides.  And, in my experience, fees will be higher.  In addition to investment fees, 401 plan participants will incur plan administration and individual service fees.

Taking cash is usually the worst option of the four as doing so subjects your savings to significant tax and early-withdrawal penalties.

Overall, I tend to prefer the option of rolling over 401k plans into IRAs because you will have greater flexibility regarding investment choices and fees paid but the “right” answer for you hinges on many, many factors, including whether or not you own company stock in your 401k plan, your need for proection from lawsuits, and the age at which you will start taking income from the plan.

  • What about benefits, the 2nd of the three topics?

Be sure to understand your new benefits package and options, including health care and life and long-term disability insurance.

Figure out:  is the coverage materially different?  Do you have any gaps in your coverage?

One often-overlooked benefit is short-term disability coverage.   One in three women and one in four men will have a disability that keeps them out of work for 90 days or more, according to The Life and Health Insurance Foundation for Education.

  • That brings us to the third area, income taxes.

Yes, your not-so-silent business and financial partner Uncle Sam.  If your salary has changed, your tax bracket might have changed, and therefore your federal and state income tax liabilities will change too.  If so, talk with your accountant regarding updating your withholding amounts and estimated tax payments.

TIP: Be sure to figure out how your job change — whether it’s due to a new job, a layoff, or retirement — might affect existing employee stock options.  Under most companies’ stock plan rules, you will have no more than 90 days to exercise any existing stock option grants.

About Kimberly Clouse

Kimberly Clouse is Advisory Board Chair at Covestor, a registered investment adviser and an online marketplace for investing.

Passionate about empowering financial consumers, Kimberly works with individuals, families and foundations to help them navigate the increasingly complex world of investment advice and make more informed financial decisions.

She previously served as Managing Director at Athena Capital Advisors and Chief Executive Officer at Hale and Dorr Wealth Advisors. Earlier in her career, she worked for United States Trust Company, J.P. Morgan and Goldman Sachs.



Note: All opinions included in this radio episode are as of [October 15, 2014] and are subject to change. The opinions and views expressed herein are of Kimberly Clouse. All investments involve risk, the amount of which may vary significantly.

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