Financial Planning for a Career Change

A: Consolidating retirement accounts makes it easier to administer, maintaining a uniform beneficiary designation, asset allocation, and investment holdings. Rolling the old 401ks into your an IRA offers unlimited investment holdings with lower administrative expenses than 401k plans. Rolling the assets to a new 401k may be a consideration, especially if you wish to convert non-deductible IRA contributions into a Roth IRA.

A: The pension benefits from your old company may have a feature that allows you to do a lump sum distribution to an IRA, or continue the pension with the intention of annuitizing when you reach retirement age. A net present value calculation should be done on the pension and compared with the lump sum option as part of the process of determining which option to choose.

A: When you quit your job, you lose your group benefits of life and disability insurance. Review your individual insurance situation prior to quitting to make sure your family is protected in the event you get sick or pass away while between jobs. Review your cash flow situation to make sure you can withstand a long period without a paycheck. Any unpaid 401k loans become a tax distribution upon termination, so pay those off before leaving.

A: Your capacity to earn income is a hugely important asset, frequently the biggest asset for those under the age of 50. Before you quit your job, review your financial plan and consider all of your options. Transitioning into a new job that you would enjoy more, even if you made less money, can be a consideration and would allow you to work longer. Taking a few classes and acquiring new skills would help you transition into a new job.

A: Look before you leap into the world of consulting. You’re far more valuable as a consultant when you have your current job than you are without it. Make sure your financial plan can tolerate the loss of income and benefits when you transition into consulting and be ultra-conservative in your revenue estimates. Having a significant cash reserve is important. Establishing a corporation (S-Corp or LLC) is a consideration to mitigate risk, provide the corporate structure to demonstrate you’re a serious business, and have benefit plans.

A: When taking a job transfer, you will want to compare any changes to your income, benefit package, cost of living in a new location, moving expenses, quality of life, services and amenities, cultural activities, schools, state income taxes and more. Sometimes making more money results in having less.

A: Make sure you hone your computer skills, presentation skills, and wardrobe before beginning interviews. Focus on your strengths, particularly your work ethic and positive attitude as most employers are willing to train specific skills. Once employed, consider the impact of your income on your family budget, your necessary savings rate, how to best utilize available corporate benefits and more.