With a labor shortage in numerous industries, some job seekers are in the driver’s seat as employers, hard-pressed to find the right talent, sweeten the pot with higher salaries, beefier bonuses and impressive commissions.
But it’s important for those who are in transition or considering an employment move to look beyond the income potential and weigh the entire compensation package being offered. There’s a lot more to it than salary.
Q2 2022 hedge fund letters, conferences and more
Before you decide to accept a job offer, do your research on these three important financial factors:
Retirement Plans
These are the main things to think about regarding retirement plans when considering a new employer or whether you should stay put in your current job:
- Do they have an employer-sponsored retirement plan?
- And if so, what is the vesting period? 3) Do they offer a company match, and if so, what is the percentage?
And if you do take the new job, what will you do with the 401(k) you have with your previous employer? You have four options with the former retirement plan: cash it out, leave your money in that plan, transfer it into your new employer’s plan, or roll your money directly into an IRA.
The idea behind employer-sponsored retirement plans is you benefit from the tax-deferred growth and compounded accumulation over time. So it’s better in the long run to keep the funds in a retirement plan; it’s just a question of whether you transfer the old 401(k) into the new retirement plan or keep them separate.
If your new company’s 401(k) investment options are attractive, it may make sense to transfer the old funds to the new plan. Or, if you roll the old 401(k) funds directly into an IRA, be aware that account fees may be higher than the employer-sponsored plan.
Also, it’s important to remember that withdrawing retirement funds before you reach age 59½ means a 10% penalty. In addition, the tax-deferred distribution is taxed as ordinary income.
Insurance Plans And Other Benefits
How will your insurance and other benefits change at a new job you’re considering? Study the details of the insurance plan you’re being offered and the other benefits. If the company wooing you is offering a higher salary than your current or former employer, but the overall benefits aren’t as good, that may be a deciding factor to stay where you are.
A benefits package can provide substantial value; along with health insurance and retirement plans, it can include stock options, sick pay, vacation pay, family leave, etc.
If stock ownership is being offered, look at the details, such as: What type of stock is being offered and what are the different tax implications? What is the vesting schedule and what are the payout rules? If you leave the company, will you be able to purchase your options?
Make sure that the company offers health insurance. Under the Affordable Care Act, employers with fewer than 50 employees aren’t required to provide health insurance.
If the company doesn’t offer insurance, would your new salary be enough for you to afford private health insurance? If the company does offer insurance, how much of the premiums do the new company pay compared to your previous employer?
What are your monthly costs and annual deductibles? Are specific treatments you need covered? If not, would your higher salary help you cover the costs, or would you want to?
Relocation
If the new job requires relocation to another state, investigate the cost of living there compared to where you reside now, including differences regarding state and local income taxes.
The higher salary being offered may look good on the surface, but it may not be so great if the new area significantly affects your take-home pay. Visit and thoroughly research the new location before deciding whether to make the move.
How much is the prospective employer willing to help with the move, the sale of your old house and the search for a new house? Would they pay for your temporary housing as you adjust to the new location and find a permanent place to live?
You might be able to negotiate those options. Carefully evaluate any relocation offer; some companies will pay for all or some of your moving expenses, but make sure you look at the tax and income considerations of any relocation package. If your employer does not help with moving expenses, you may be eligible for tax deductions.
Choosing whether to take a new job is one of the most important decisions you will make. Taking it ideally means a step up in your career, your finances, and your life.
Or perhaps when you weigh all the factors between a current job and the potential new one, you’ll discover the grass isn’t greener around the corner. The bottom line is two-fold: more money won’t by itself buy happiness, and you need to consider every financial aspect to make the decision that’s right for you.
