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Financial Planning Strategies When Making a Career Change

Changing careers can involve much more than taking on new responsibilities with a new company. It can also entail adjusting your financial strategy as it pertains to your savings and retirement planning. If you’re a participant in your employer-sponsored retirement savings plan, you will have to consider how a career change may affect your future retirement income and lifestyle.

Retirement Savings Options 

Some company-sponsored retirement plans allow you to leave your money in the employer’s plan or transfer the funds to your new employer’s retirement plan (provided that a similar plan is offered). You can also choose to roll the funds into an IRA.

If you decide to do a rollover, ideally do a trustee-to-trustee transfer, following the IRS rules. Having the plan custodian move the money directly from your old account to the new account lessens the risk.

If you will be starting a new business, you could be eligible for self-employed retirement plans, such as:

  • SEP-IRA – A Simplified Employee Pension (SEP) is an individual retirement plan that an employer or self-employed person can set up. SEP IRAs have flexibility in funding and contributions are treated as a business expense. There is a wide range of investment choices. The earnings in this account will grow tax deferred.
  • SIMPLE IRA – The Savings Incentive Match Plan for Employees, or SIMPLE IRA, may be used in small businesses with 100 or fewer employees. Here, the employer can opt to make non-elective contributions of 2% of the employee’s pay, or a dollar-for-dollar matching contribution.
  • Solo 401(k) – Solo 401(k) plans are designed for business owners who have no employees. These plans can be either traditional (with pre-tax contributions and tax-deferred growth, but fully taxable withdrawals) or Roth (with after-tax contributions but tax-free growth, and tax-free withdrawals).

If you transfer to another employer, your income will likely be reported on Form W-2, and you can have your taxes withheld directly from your paycheck. If you go the route of a freelancer or solopreneur, your income will be reported on Form 1099. Consulting with a tax advisor or CFP® professional can be beneficial. Whether you work for an employer or for yourself, they can help you look for potential deductions for which you may be eligible.

Your CERTIFIED FINANCIAL PLANNER™ professional will also assist in adjusting your financial plan if you have had any other major life changes — such as marriage or divorce, the death of your spouse or partner, or other situation(s) that may affect your short- and long-term finances.

Benefit Options

Other financial planning options to take into consideration with a career change are the benefit packages available to you. In addition to retirement plans, such benefits may include health, disability, long-term care and life insurance coverage.

If transitioning to a new employer, determine whether the benefit package is enough to meet your needs. Many companies provide a small amount of term life insurance, which could fall short of what your survivors would need if the unexpected occurred.

If you have a domestic partner, find out if partner coverage is also an option in the new company’s benefit package. If such benefits are not provided by your next employer or business endeavor, you should discuss your alternatives with a CFP® practitioner to determine what you need and to see what possible solutions may fit your cash flow comfortably.

Depending on what your future employment situation is, it may be possible to negotiate a higher salary so you can purchase your own insurance coverage if the company does not offer insurance advantages. Another potential alternative is to purchase insurance coverage through a trade organization, which could allow you to obtain a “group” rate on the premium.

To learn more about advantages of working with a CFP® professional when making a career change, check out

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