Starting a New Job

Starting a new job or changing careers can be an exciting time with rewarding challenges. A thorough understanding of your past and future compensation packages can help you better prepare for financial emergencies, preserve retirement assets, and minimize tax burdens. We recommend you consider the following financial tips when preparing yourself for a transition into a new job.

Understand the Tax Implications of Starting a New JobStarting a new job gives you an opportunity to verify whether the right amounts of taxes are being withheld from your check. Taking the time to go over the instructions on your new employer’s W-4 form, could either affect the amount you are paid throughout the year or the amount you receive as a tax refund. It is important to understand the number of "allowances" you claim on that form, because it controls how much will be withheld from your checks. If you withhold too much, you are basically giving Uncle Sam an interest-free loan all year. Withhold too little, and you may run into some unpleasant surprises such as owing money to the IRS at tax time. Use the IRS withholding calculator to help determine the right amount of withholding for you, or consult a tax professional for advice.

Additionally, if you own a home and have to sell it in order to relocate to a new job, there could be capital gain or loss tax implications. Understanding how to maximize deductible expenses could be a vital key to preserving more of your wealth at tax time. For example, if you are transitioning into the same line of work and have not been unemployed a long time, you may be able to take an itemized deduction for the expenses you incurred while searching for a new position. Eligible expenses may include, for example, the cost to print and mail your resume, fees paid to an employment or outplacement agency, and travel costs associated with the job search. We recommend that you consult a tax professional to help you estimate your federal and state income-tax liabilities before (or as soon as possible after) you begin your new job.

Understand your Disability Insurance BenefitAlthough it is often overlooked, having private disability coverage can be very important. According to the Social Security Administration, approximately 30% of today's 20 year olds will be disabled before reaching age 67.[1] The Council for Disability Awareness reported that, “One in seven workers can expect to be disabled for five years or more before retirement.”[2] If you are not prepared, unexpected illness or injury could:

• Ruin your credit.
• Cause you to deplete your retirement savings.
• Cause a foreclosure of your home.
• Cause you to declare a personal bankruptcy.

There are two basic forms of disability insurance coverage:

• Short-term disability. This typically provides coverage for three to six months.
• Long-term disability. This typically provides coverage from two years to a lifetime.
• While coverage is discretionary, it's important to find out if coverage is offered by your employer, and if so, what type. Many employers offer only long-term disability coverage. If your new employer offers disability insurance, it’s more than likely that it may only cover 60% of your monthly salary. This will leave you vulnerable if you are unable to pay short-term expenses. If your employer does not offer short-term coverage, you can prepare yourself by setting aside money each month in an emergency fund to help pay for unexpected events. An adequate emergency fund should equal no less than three to six months of your monthly expenses. An emergency fund should be a part of your personal budget. For more information about disability benefits, read the “Disability” section on our Financial Challenges web page.

Understand your Life Insurance BenefitWhen it comes to protecting yourself, your family, and your wealth it is essential to understand how much life insurance you need, if any. However, determining this amount can be difficult. One general rule of thumb is that you should have enough coverage to equal five to seven times your annual salary.

Many employers offer life insurance coverage, which can be a valuable safety net, but it is only a starting point. Even a quality benefit package may contain gaps that could leave you and your family exposed to serious financial risk. According to the Bureau of Labor Statistics, the majority of employer-sponsored plans provide between one and two times your annual salary and most provide either a flat benefit amount, or a benefit that is based on your annual earnings[3]. Some plans do not grant the right to convert your insurance to an individual policy upon termination or resignation. So, it is important that you do not rely too heavily on employer-provided coverage, or assume your employer-provided benefits automatically meet all of your needs. As it is a discretionary benefit, we recommend that you find out what type of life insurance coverage your employer provides, if any, and then use the life insurance needs calculator or a similar calculator to determine your overall insurance needs.

Understand your Medical Insurance BenefitThe lack of health coverage could result in an overwhelming financial loss if you're injured or become ill. As it is a discretionary benefit, it is important to verify whether your new job has an employer-sponsored health care plan, and make sure you know when your coverage will begin. Typically, most standard employer-sponsored health care plans require new employees to wait anywhere from 30 to 90 days before they are eligible for health insurance benefits. If possible, you may want to extend coverage from you former employer to avoid having any lapse in coverage. If you are eligible, the Consolidated Omnibus Budget Reconciliation Act (COBRA) gives you the right to continue your existing health insurance coverage up to 18 or 36 months after departure from your previous job, depending in part on the circumstances in which you left your previous job. However, you may be required to pay up to the entire premium for coverage plus a 2% administrative fee.

Generally, most employers offer three main types of health plans: Health Maintenance Organizations (HMOs); Preferred Provided Organizations (PPOs); and Fee for Service Plans. If you are married and your spouse has a health plan, you may want to compare your spouse’s health plan with yours for cost and overall value. Some areas you should consider comparing are:

• The cost of your contribution to the plan.
• The network of physicians available in the plan.
• The deductibles and co-payments you must pay.
• Whether prescriptions are covered under the plan.

If your employer does not offer an employee health plan, we recommend that you purchase private insurance coverage for you and your family. If you need tips on choosing the right health care plan, visit healthcare.com or The Joint Commission. You may want to consider hiring a health insurance broker to help you sort through all of the plans available. For assistance in finding insurance agents and brokers, visit the National Association of Health Underwriters (NAHU) website. Many states also offer affordable insurance options for those who qualify. To determine what options are available in your state, visit the Cover the Uninsured website.

Other BenefitsYou may be eligible for additional benefits either through your employer or the state or federal government, such as workers compensation and paid family leave. We encourage you to explore other benefits which may be available to you and to take advantage of those that make sense.

The material provided herein is general and for basic educational purposes only and does not purport to be comprehensive. We are not attorneys, tax accountants, or brokers. Nothing contained herein should be construed as legal, accounting, tax or other professional advice. You should consult with a licensed attorney, accounting or tax professional for any specific questions you may have regarding your situation and should not rely on any information contained herein as being a substitute for professional legal, tax or accounting advice.

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Any financial figures or other numerical or statistical information, including interest rates, prices, and similar information are for exemplary purposes only and may not reflect the most up to date information available. We do not in any way guaranty or promise that any interest rates, prices or other similar information will continue to be available.

[1] Social Security Online: Social Security Basic Facts 2009.

[2] Council for Disability Awareness. “Chances of Disability”

[3] National Compensation Survey: Glossary of Employee Benefit Terms. July 2009.