Making the Move: Things to Know When Starting a new job

Apr 2023

As a new member of the team at Bloom Advisors, I find myself navigating a meaningful life transition, one that I have advised many clients on in the past. I now find myself in the position of having to take some of my own advice, which we know isn’t always easy! Here are some recommendations, both personal and financial that you should consider when starting a new job.

To start, be efficient with your time. Starting a new job can sometimes feel overwhelming, but employers should understand that onboarding doesn’t happen overnight. Of course, you want to prove your value, but it’s important to ask questions and get to know your new team early on. Time is the most important thing we all have, so use it wisely.

From a financial perspective, you’ll want to focus on three main considerations: retirement plan contributions, insurance, and tax withholdings.

Retirement Plan Contributions

In today’s market, where there have been some adverse market conditions, I like to look at it as everything is on sale. As a millennial investor myself, this is a great time to start investing more savings and use time to our advantage. Nobody has a crystal ball, but anyone who has a lot of working years left should certainly be taking advantage of the investment vehicles available.

If your employer offers a matching contribution to a 401k or other retirement plan, you should definitely take advantage of this. In most cases, that’s a 100% return on your investment out of the gate. This is a no-brainer! To take it one step further, I suggest maximizing your tax savings. In 2023 a covered employee can contribute up to $22,500 to a 401k plan. If you are in a 22% federal tax bracket and 4.25% Michigan tax bracket, this adds roughly $5,900 back into your pocket!

If you are young and in a lower tax bracket, you may want to consider doing the Roth 401k option. In this case you don’t save taxes now, but it’s tax-free once you are 59 ½ so all that growth over time will not be subject to tax. The longer the time horizon you have the better this option becomes. Make sure that if you were contributing to a prior employer plan that you coordinate the annual contribution limitations between both plans.

It’s not just the match and tax savings that you need to consider. Some other key questions include:

How do I invest my contributions?

Should I roll my prior employer plan into my new employer plan OR roll it into an IRA?

Should I enroll in a Brokerage Link?

The answers to these questions are not the same for all investors. Each investor will have a unique answer depending on their personal situation. Retirement plans can be very complicated, and the rules are constantly changing. I always recommend discussing your options with a financial advisor.

Insurance

When changing employers, it’s important to pay attention to your enrollment options for what benefits and insurance options are provided. These can have timelines to enroll so you should make sure you don’t have any gaps in coverage. Below are some of the typical benefits that employers provide:

  • Health Insurance: This is typically the most affordable way to receive health insurance coverage because employers often pay a percentage of the premiums. If you have dependents and/or a spouse you should consider what is the most beneficial plan to cover everyone. In some cases, it’s best for one parent to cover the children but for the other spouse to have their own coverage. In other cases, it may be best to have the whole family covered under one plan. There are a lot of options here so investigate them wisely based on your health needs and cost.
  • Health Savings Account (HSA): If you have this option, I highly recommend contributing to it. You save on taxes (just like a traditional 401(k)) and can invest the money to later use towards qualifying healthcare costs, tax-free. I consider it the most tax-advantageous account that exists for individuals. There are also Flexible Spending Accounts (FSAs). These can also pay for qualifying healthcare costs and sometimes dependent care costs. Be careful with how much you contribute though, because unlike an HSA, these have use-it-or-lose-it rules.
  • Disability Insurance: If you ever become disabled, it’s important to know you are covered. There is short-term and long-term disability and anything the employer pays for is a no-brainer to opt into.
  • Life Insurance: If your employer provides any life insurance at no cost, you might as well take it. If you need additional life insurance, opting into a group employer plan through work is often an affordable way to do so without having your medical records examined.

Tax Withholding

Although I personally love tax season, there’s nothing worse than a surprise tax bill come April 18th. For anyone transitioning to a new role, this becomes extra important, especially if your income is changing as a result of the new position.

For some people, completing the federal Form W4 can be done just as it’s intended. These folks can take the number of dependent children they have and list that on the form allowing payroll to automatically account for that in their withholding. For many, however, this isn’t adequate as it doesn’t factor in other income like dividends, rental income, or your side hustle. It’s also more complicated when filing a joint return when there is a big variation in income between spouses. There are other issues for people that get paid commissions or bonuses that fluctuate throughout the year.

It is always a great idea to run your first paycheck by your tax preparer. I typically recommend people try to breakeven or more importantly, hit their safe harbor. The safe harbor is a calculation to make sure you are safe from penalties and interest the IRS can assess if you don’t pay in enough.

While starting a new job brings lots of excitement, it is important to spend the time to review how this life change will impact your financial well-being. In the end, money is a tool we use to make some of our goals a reality. You work hard for it, so you should always maximize what you end up with.

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