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Finances During Job Transition 

 

 
 
Tags:  low  mortgage 
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Published:  November 20, 2011
 
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Slide 1: Finances during Job Transition Ben Keeling Job Search Learning Labs December 4, 2009 Check with your Financial Professional!!
Slide 2: Health Insurance • • • Need continuous coverage (no lapse of more than 63 days) to avoid any potential pre-existing condition restrictions later. Spouse’s plan – your change in employment status is a qualifying event for that plan. COBRA--possible to select medical only or dental only; also possible to change structure vs. coverage you had thru your employer, e.g. husband and wife with separate individual policies under COBRA vs. employee + spouse under employer coverage. Subsidized COBRA for involuntary termination Buy coverage on your own – When to pull trigger, plus consider deductibles if not at beginning of plan year. What if disaster strikes while near the end of your COBRA coverage?....Impact if you then buy your own coverage. Flexible Spending Account (FSA) likely ends when employment ends. Separately, keep in mind that an entire year’s FSA amount is available immediately beginning the first day of the plan year; it doesn’t depend on the amounts already deducted from paychecks. Keep in mind if you know you (or your spouse will end employment). • • •
Slide 3: Life Insurance • Term insurance thru employer – May not be portable • Term insurance on your own – May be less expensive, particularly if you lead a low-risk, healthy lifestyle • Letting it lapse could be wasting years of premiums • Some types of policies may allow you to borrow a portion of the cash value (whole or universal). Also, the cash value can typically be used to pay premiums if need be.
Slide 4: Other Insurance • Disability, long-term care • Portability from employer plan, at least for long-term care insurance • May have invested significant amount already (especially long-term care)
Slide 5: Savings and Other Liquefiable Assets • Hopefully you have or had (advice is six months’ worth of savings as emergency fund) • Tax implications of selling investments
Slide 6: Mortgage • First, Second (Home Equity Loan or Home Equity Line of Credit) • May want to refinance if possible: cash out and/or lower rate; refi typically isn’t free, though • Might be able to re-work terms, but sometimes need to be distressed already! • Do any refinancing while you (or spouse) still have a job, if at all possible
Slide 7: Credit Cards • May be able to tap via balance transfer or growing your purchase balance, but beware of rising rates and fees. • Maintain a good credit rating if at all possible, both for obtaining credit in the future and because employers increasingly do a credit check as part of the background check on a potential new employee. • May want to use a seldom-used credit card once every six months to avoid having the card become inactive. Lack of activity could also lead to your credit line for a particular card being card.
Slide 8: 401(k) • Loans – Typically due within 30-90 days of departure or it becomes a premature distribution. • Leave with former employer? $5K threshold but depends on employer/plan. If you transfer money from a former employer's plan to an IRA, opt for a "direct rollover" that avoids you having to receive and then re-deposit the money yourself. • 401(k) plans often have a stable-value option (bonds in combination with insurance wrapper) that pays a higher return than money market funds, particularly in a low interest rate environment like today’s. • Company stock may have discounted basis. • If you left your last company between ages 55-59.5, you can withdraw 401(k) money without owing the 10% penalty.
Slide 9: IRA • Conversion to Roth in 2010; don’t use proceeds to pay taxes. Lower tax rate and/or lower valuations could make this very attractive if you can afford it! (No income limits and ability to spread tax impact over two years….plus flexibility via ability to recharacterize.) • Accessing – See matrix on next page; it’s complex!! • Rule 72(t) – “Substantially equal periodic payments” (SEPPs) for gradual distribution over time without penalty even if you are under age 59.5 – complex and may not be able to draw down very much near-term with this method.
Slide 10: IRA Distribution Treatment There are exception situations (education, first-time homebuyer, etc.) that hav e v arying treatments. Age > 59.5 > 5 Yrs < 5 Yrs Age < 59.5 > 5 Yrs < 5 Yrs Roth IRA Contribution Income Tax 10% Penalty No No No No No No No No Roth Conversion IRA Taxable portion Nontaxable portion Income Tax 10% Penalty Income Tax 10% Penalty Income Tax 10% Penalty No No No No No No No Yes No No Yes No No No No No Yes Yes No Yes No No Yes Yes Roth Earnings Traditional IRA (Nondeductible Basis is Prorated) Nondeductible Contributions Income Tax 10% Penalty Deductible Contribution + Earnings Income Tax 10% Penalty No No Yes No No Yes Yes Yes Information believed to be accurate but cannot be strictly relied upon. Consult with a financial professional before making significant decisions! For example, there are rules pertaining to the ordering of Roth IRA distributions.
Slide 11: Questions/Discussion • My contact info: – Cell: 513-325-1425 – Email: ben.keeling_usa@yahoo.com – Connect on LinkedIn or follow me on Twitter: @BenKeeling • Consult with a financial professional before making significant decisions!

   
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