By Michael Leanza, CFP®
Job loss is a stressful life event that anyone can experience at some point throughout their career. If you find yourself without a job through no fault of your own, you probably qualify for certain programs that help ease the process of transitioning from one position to the next. Here are few steps that can help if you find yourself out of work:
Step 1: Review your severance package before you sign.
•You have 21 days to sign a severance deal and seven days after that to change your mind.
•If you’re an experienced manager or executive-level employee, you may be able to negotiate a better deal.
•Be sure you understand the terms. Look online for some guidance or talk with an attorney.
Step 2: Apply for unemployment.
•Federal/state unemployment compensation program covers almost all wage and salaried workers.
•Eligibility and benefits vary from state to state, so contact your state for details.
•Benefit typically depends on your recent earnings.
•Unemployment income is taxable.
Step 3: Take advantage of your COBRA rights.
•Thanks to the COBRA legislation of 1986, most workers can continue to be covered under their employer's health insurance plan for up to 18 months after being laid off and most states have mandated an even longer extension.
Step 4: Roll over your 401(k) account.
When it comes to preserving your retirement savings, you have several choices. This is an important decision, so weigh the pros and cons of each choice carefully. You can:
•Make a direct transfer of your entire account balance to a Rollover IRA. This way your money continues to grow tax-free.
•Get a check from your former employer and roll this over to an IRA. In general, this isn't a good idea because your employer will be forced to withhold 20 percent for prepayment of federal income taxes. If you're under 59 ½, you must do this within 60 days or you also will be charged a 10 percent penalty. State income taxes and penalties may also apply.
•Leave your money with your former employer. You'll still be tied to the investment choices in your former employer's plan, but you won't have to pay taxes or penalties.
•Cash out. If you just take the cash, you'll owe taxes on the entire amount, plus potential penalties depending on your age.
Step 5: Create a budget and cut your spending.
•Decide what you're going to live on while you look for a new job. Severance pay? Your spouse's income Unemployment benefits? Your emergency fund?
•Analyze necessary expenses, like rent or mortgage, utilities, and insurance and plan how to reduce other outflow.
Step 6: See if you qualify for other forms of assistance.
•You can check with your former employer, a tax professional or go to IRS.gov regarding additional tax benefits.
Step 7: Look for a job!
•Start your job search right away.
•If needed, work on applying your skills and experience to another industry or take a part-time/free-lance job.
Tracking # 635273
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy can assure a profit or protect from loss.