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General
Before Leaving a Job: A Checklist
By Jim Thompson
Certified Financial Planner ™ Practitioner, Linsco/Private Ledger Financial Services
Can you recall the first few days with your current employer? You filled out a flurry of forms, met with various people to learn the ropes, attended an orientation, and made a raft of decisions about your benefits.
But now you’ve decided to leave...or the decision was made for you. As you exit, pay the same careful attention to your benefits as you did at the outset. Here are some areas for you to consider:
Savings balances.
Ask your employer for an accounting of all balances in workplace retirement and savings plans: Defined Benefit Pension Plan, 401(k), 403(b), Profit Sharing, Employer Stock Option Plan, Money Purchase Plan, Deferred Compensation, stock options, severance pay, vacation pay, sick pay or others.
Pay off 401(k) loan.
If you have borrowed money from your 401(k) plan, repay it before you leave. Any unpaid balance on a 401(k) loan when an employee leaves is considered to be a "taxable distribution," and is subject to ordinary income tax rates. Worse, if you are under 55, the distribution will be considered "premature" and subject to an additional 10 percent tax penalty.
Calculate Defined Benefit lump sum distribution.
If you are eligible for a lump sum pension distribution from your employer, ask for an explanation of how the distribution was calculated. Review it carefully before deciding whether to opt for the lump sum or an annuity. For some people, this check may the biggest of their lives; and mistakes have been known to occur. The services of an actuary or accountant may be necessary.
Rollovers.
Request copies of your company’s instructions and forms for rolling over your 401(k) or 403(b) plan to an Individual Retirement Account at a bank or investment company of your choice. Read these documents carefully or seek professional financial advice to ensure that the rollover is done without inadvertently triggering tax consequences. Unless your account is less than $5,000, it is usually not required that you withdraw or transfer the assets. However, there are significant advantages to rolling these balances to IRAs such as increased investment choices and less stringent distribution rules.
Company stock.
If you own company stock in your 401(k), ask for an accounting of your cost basis. This data is crucial in order to take advantage of a special tax provision related to the distribution of company stock. This provision (Net Unrealized Appreciation) may create significant tax savings, but must be acted upon before the stock is rolled over to an IRA.
Uncontested unemployment compensation.
At times, employers will contest the unemployment claim of a terminated worker. Asking your employer to agree not to do so will make getting unemployment benefits a lot easier.
Health insurance.
Gather documents related to the continuation of health insurance coverage. In many cases, your coverage will be continued under a federal requirement called COBRA, which gives terminated workers the option to continue health coverage under their former employer’s plan for 18 months (the period may vary depending on your circumstances). Be prepared to pay the full premium for this coverage, not just the portion you paid as an employee.
Unusual assets in your employer-sponsored plan.
If you have restricted stock or any other type of illiquid asset, such as a limited partnership, real estate, precious metals or art work, seek assistance with valuation and distribution rules.
Documents.
Save all documents related to your separation from service.
Key Dates.
Make a record of future dates by when you must inform the Human Resources Department of decisions such as the commencement of pension benefits. These dates may be decades away, and easy to forget.
Address change.
Notify Human Resources if your mailing address changes.
Help Your Executor.
As part of your estate planning, provide your executor or other loved one with contact information at any former employer involved in your defined benefit pension plan, retiree health insurance, or balances in savings programs.
The opinions voiced in this material are for general information only and are not intended to provide specific tax advice or recommendations for any individual. To determine which strategy may be appropriate for you, consult your tax or financial advisor.
Advisor is a Certified Financial Planner™ practitioner and is a registered representative with and offers securities through Linsco/Private Ledger (LPL), Member NASD/SIPC.
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