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Whether you have reached your FIRE date or found a better job, there are a few things you should be paying attention to before quitting your job. We know, your future is out there waiting for you. You are all excited about it. Get your happy dance under control to make sure you don’t screw yourself on the way out. Then celebrate!
If you’re not sure where to find the answer to some of these questions, search for the company handbook or policy guidebook. You may also have a benefits portal or other HR platform where your company posts policies and similar information. If in doubt, you may have to suck it up and ask HR but don’t wait until your last day to see how you could be affected.
Aside from trying to time your departure to optimize annual bonuses or perhaps pre-loading retirement contributions, there are other things you should be thinking about that are often overlooked.
Top Ten List – Things to think about before quitting
Here is a checklist of ten things to get your thinking:
- When will your health insurance end? Some companies terminate coverage on your last day, others carry you through the end of the month. Maybe you have time to squeeze in an appointment or refill a prescription before your coverage terminates? Your coverage, if any, at the next company will take some time to get set up (there may also be a waiting period). Don’t risk going without medication if you can refill before your coverage ends. Plus, if your new plan has a deductible, you’ll have to start from zero again.
- Are you walking away from 401(k) contributions made by your employer? Find out the vesting schedule for your retirement plan. They can vary. Some employers will ‘vest’ employer matching contributions on day one (essentially there is no waiting period). But others can spread out the vesting schedule (called partial vesting) up to 6 years until you are fully vested. Yet others, have what’s called a cliff vesting schedule where you are not matched at all until you hit the magic anniversary. Every plan is different – check the Summary Plan Description (SPD) if you can find it. In addition to vesting, some companies require that you are actively employed on the last day of the year to receive the 401(k) match if they make annual contributions.
- Have a 401(k) loan? Are you prepared to pay it back in full? If not, expect the unpaid balance to be treated as a distribution which includes that nasty 10% penalty if you are under the age of 59.5 on top of ordinary income taxes. Send your thank you note to the IRS!
- Are you walking away from unused Health Care Flexible Spending Account (FSA) money? IRS rules dictate that your employer cannot simply just refund you FSA money you didn’t use. It was funded with your pre-tax dollars and was meant for health care expenses. If you don’t have claims to submit for valid medical expenses prior to your last day of plan participation (probably your last day), you forfeit the balance! They may offer you the chance to enroll in COBRA to continue using your FSA through the end of the current plan year. The good news is, if you used up more than the amount you paid in so far this year, your company cannot try to balance bill you. They have to eat that loss. If you have an HSA, you get to take the money with you so decide if you want to leave it with the current administrator or find a new bank to rollover to.
- When will you get your last paycheck? Will there be special processing for your final paycheck? In some states, such as California, they have to pay you final earnings on your last day of work. If they have to do this manually, they may hand you a live-check instead of using direct deposit. Regardless, you should check your pay stub carefully to make sure any manual calculations or adjustments they made on your final check were correct. You probably also want to know what deductions, other than taxes, come out of your final pay. 401(k)? Other benefits?
- Are you going to get paid for unused PTO or vacation time? Both companies and states vary on rules concerning this. Your company should have a written policy. Find it! A small windfall of these earnings could tide you over for a while during the transition period to your new company.
- Do you owe the company for Tuition Reimbursement Benefits or other programs with a pay-back clause? Maybe you have forgotten about it in the excitement of finding a new job. You may be surprised that you have to repay some benefits if you leave within a certain window.
- Formal Bonus Plan? What are the rules for payout if you quit? If you are fortunate enough to be in a formal incentive bonus plan, read over the plan rules. Some are required to pay you a prorated bonus after you leave and some require that you are employed on the last day of the year or on the day the payout occurs. Anything really could be the case. Read the documents. If you assume the company will send you a check next spring, you could be in for a very big disappointment. Unless you find written verification that you will be paid something, assume you won’t.
- Who should you provide your new address to if you are moving? Why? You want to receive your W2 and 1095 forms in a timely fashion to file your income taxes. Plus, if you have any retirement plans with this employer, they need to be able to find you to update you on your funds or plan changes in the future. This is especially important if you have a defined benefit (pension) plan and you are not going to file for benefits right away.
- Are you walking away from certain Retirement options from a defined-benefit or pension plan? Pensions are pretty rare nowadays. But if you have one at your current job, you may want to read over the plan documents to see if leaving now cuts off some options for early retirement benefits, for example. Let’s say your pension plan allows for you to commence your retirement benefits at age 55 instead of 65 (normal retirement) but only if you have 10 years of service with the company. You quit after 8 years and now you no longer have that option available to you. Only your plan administrator can answer the question for you if you can’t find it out on your own. It may not change your decision to jump ship, but at least you know.
Hope this gets you thinking about a few things to check up on. If you just put in your notice, try to find out the answers quickly so you have time to react to the answers you uncover. And Good Luck!