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- Millions of Americans are considering quitting their jobs as part of the “Great Resignation.”
- If you’re one of them, don’t abandon your 401(k) — make a plan for it before you resign.
- And consider your insurance needs, too. You may lose your health, disability, and life insurance.
- Use Blooom to analyze your 401(k) today and see how you can grow your retirement savings »
The COVID-19 pandemic has brought many changes to the American economy. Businesses have changed how they operate and struggled with managing disrupted supply chains, and consumers have faced price spikes for goods and services.
To some degree, those particular challenges were expected. But a more surprising aspect of the post-pandemic economy is the power shift from employer to employee that we’re seeing unfold.
Polls have shown up to 95% of workers are considering quitting their jobs in what commentators are calling the “Great Resignation.” Workers cite both burnout and lack of growth opportunities in their current positions as reasons for seeking employment elsewhere. (I’m pretty sure the hefty new hire bonuses that many companies now offer play a significant role in this trend, too.)
But before you join the crowd and hand in your own resignation notice, make sure you’re financially prepared for a personal career shift. Here are two things to consider.
Many workers tend to leave jobs without thinking through what they’ll do with their company-sponsored retirement plan. You have three main options when you need to manage an old 401(k) plan, and you need to choose one to ensure that you are keeping your retirement on the path to success.
Your first option is to do nothing and leave the plan with your previous employer’s 401(k) provider.
This is obviously the path of least resistance, but it may not even be an option depending on your balance; some employers will not allow you to leave a plan with less than $5,000, for example. You also give up some of the usual benefits available to active employees, such as the ability to take out a loan from your 401(k).
Your second option is to roll over your old employer’s company retirement plan into your new employer’s retirement plan. Before you go this route, check with your new employer to make sure their plan allows direct rollovers from prior employers.
Once funds are rolled over, your plan will treat these funds like they were there from the beginning. You will be able to obtain things like 401(k) loans on the funds. In addition, this option allows you to consolidate all of your company’s retirement plans to make it much easier to ensure that your asset allocation stays in line with your goals and risk tolerance.
Your third option is to roll over your funds into a rollover IRA. This option gives you the most control over your investment choices and tax withholding requirements should you withdraw funds.
The drawback here is that rolling funds to an IRA means losing the ERISA (Employee Retirement Income Security Act) creditor protection on qualified retirement funds.
Generally, ERISA allows employer-sponsored qualified retirement plans federal protection from funds being seized by any creditors. Non-qualified retirement accounts such as IRAs are not federally protected and are subject to each state’s respective creditor protection laws.
One of the many benefits of being employed is the ability to use the company’s group insurance plan offerings to mitigate or supplement the coverage needed to protect you and your loved ones.
You may know that COBRA for medical insurance allows employees to keep their medical coverage even after leaving their employer due to a qualifying event. But most people are not as familiar with their separation options regarding both life and disability insurance.
Before leaving your employer, get a copy of your employer’s Summary Plan Description (SPD) for your life, health, and disability insurance policies.
Not only will this document answer general frequently asked questions (like how much you have in coverage amounts and how to file a claim), but it will also give you your employer’s rules regarding the benefit in the event of a separation of service (such as retirement or, in your case, resignation).
Depending on how your employer designed their respective employee benefit, your group insurance policy might be portable after your resignation. The portability feature allows an employee to buy and transfer the group insurance coverage over to an individual policy when the employee has voluntarily or involuntarily separated from the employer.
Leaving your job, and therefore your current benefits, could leave you exposed to risk from lack of insurance. Understanding where the gaps may be is important for anyone, but may be of particular concern for anyone with major health concerns.
With the group policies you can opt into as part of a company’s benefits package, you can typically get coverage for life, disability, and health insurance without going through an underwriting process. With private insurance, however, an insurance company may not approve you depending on your medical history or current health, leaving a particularly large gap of coverage if you quit your job without something else lined up that allows you to leverage new group plan benefits.
Now may be a great time to leverage the power shift we’re seeing between employers and employees. Quitting your current job in search of something more aligned with your desires and needs might provide you with a better financial outcome in the long-run – but don’t forget some of these key planning considerations before you make the move. Make sure that you are not ignoring your retirement plan and exposing yourself to extreme levels of risk.
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