Don’t Leave Your Benefits Behind
When changing jobs, lock down health insurance and don’t forget your 401(k).
After almost eight years at Kiplinger, where I started my career as an intern, I’m moving on to a new job. I had to tie up a lot of loose ends as I eyed the exit, and one of the most important was figuring out what to do with workplace benefits, including health insurance and my retirement savings account. It’s a task that most millennials will need to tackle more than once as we make moves to advance our careers.
For most job-switchers, health insurance is the most pressing concern. Many employers’ health plans let you continue coverage until the end of the month in which you resign. You also need to know when you’ll be eligible for your new employer’s health care coverage. Some companies will let you start coverage right away, while others have a waiting period of 30 to 90 days.
I won’t have a gap in coverage. But if you do, you have several options. As long as your former employer has 20 or more employees, you’ll generally be able to keep your insurance for up to 18 months through the federal law known as COBRA. Prepare for sticker shock. You’ll have to pay your share of the premium and the part your employer used to pay, plus administrative fees up to 2%. You’ll have up to 60 days after you lose your job-based coverage to decide whether to take COBRA and another 45 days to pay the first premium. Because coverage is retroactive to the day you lost coverage, some people who are between jobs wait to see if they need medical care during that time before enrolling.
You may find more-affordable coverage elsewhere. Job seekers who are married to a spouse with workplace coverage options may enroll in the spouse’s plan. Or you can purchase insurance from your state’s insurance exchange, available at HealthCare.gov. If your modified adjusted gross income is less than $49,960 ($67,640 for married couples), you can apply for a federal subsidy. Otherwise, you may want to shop for a short-term plan on a site such as eHealthInsurance.com. Premiums for short-term plans usually cost a lot less than plans on the exchanges, but they typically don’t cover preexisting conditions and can reject you because of your health.
Make a plan for your 401(k). If your old boss’s 401(k) or other employer-sponsored retirement plan has great investments, you may decide to leave your money in the account. But you won’t be able to make additional contributions and may be charged an account-maintenance fee. Another drawback: If you change jobs several times and leave 401(k) plans behind, it becomes more cumbersome to manage your investments. If your new employer’s plan accepts rollovers and you like its roster of investments, you could transfer the funds to the new company’s plan once you’re eligible. Or you may roll your old 401(k) into a new or existing IRA, which could offer lower fees and broader investing options than employer-sponsored plans.
Once you decide where you want the money to go, contact your old 401(k) provider and request a direct rollover into the new account. Avoid withdrawing the balance or having a check made out to you. If you do, 20% will be withheld for income tax, and unless you put the entire distribution, including the withheld amount, into a new retirement account within 60 days, you’ll owe income tax on that money, plus a 10% early-withdrawal penalty because you’re younger than age 55.
I need to pay roughly $15 in fees to leave my 401(k) where it is until the final contributions are made, and after that I will move the funds to my new employer’s plan. But first, I’m enjoying a few days off before starting my next adventure.