Changing jobs: a retirement and benefits checklist

A new job usually comes with a stack of forms, and the old job leaves loose ends behind. Retirement accounts and benefits are easy to overlook in the shuffle, and a few of the decisions have deadlines. This checklist covers the items that most often matter, in roughly the order they come up.

Before the last day

Check vesting. Vesting means ownership. The IRS explains that an employee's own contributions are always 100% vested, but employer contributions such as a match may vest over time under a schedule in the plan document. Amounts that are not vested when employment ends may be forfeited. The plan's summary plan description or a benefits statement shows the vested percentage, and the post on vesting schedules explains how schedules work.

Look for an outstanding plan loan. A plan may require the full balance of a 401(k) loan to be repaid when employment ends. If it is not repaid, the IRS says the unpaid amount is treated as a distribution, which is generally taxable. The tax can be avoided by rolling over an amount equal to the unpaid balance to an IRA or another eligible plan by the due date, including extensions, of the federal tax return for that year.

Gather records. Recent statements, the plan administrator's contact details and the summary plan description are easier to download while workplace logins still work.

What to do with the old retirement account

The IRS lists four general options for a workplace account balance after leaving a job:

1. Leave the money in the old plan, if the plan allows it.
2. Roll it over to the new employer's plan, if that plan accepts rollovers.
3. Roll it over to an IRA.
4. Withdraw it, which generally means income tax on untaxed amounts and possibly a 10% additional tax on early distributions.

Plans are allowed to move very small balances out without the owner's consent, so a small account may not be able to stay.

There is rarely a need to decide in the first week. The guide on old 401(k) options compares the four paths in detail. When a distribution is paid to the individual instead of directly to the new plan or IRA, the old plan usually withholds 20% for federal income tax.

Keeping the old plan informed of a current address helps prevent the account from being lost track of later.

Joining the new plan

A few questions are useful to ask the new employer.

• When does eligibility begin? Some plans allow contributions from the first paycheck. Others have a waiting period.
• Is enrollment automatic? Many plans enroll new employees at a default contribution rate and in a default investment.
• How does the match work, and when does it vest?
• Does the plan accept rollovers from a previous plan?

One detail affects people who change jobs mid-year. The annual limit on an employee's own 401(k) contributions generally applies to the person, across all plans combined. The new employer's payroll system generally does not know what was contributed at the old job, so tracking the total falls to the employee.

Health coverage between jobs

Job-based health insurance often ends on the last day of work or at the end of that month, and the new employer's coverage may not begin right away. HealthCare.gov describes two main options for the gap.

• A Marketplace plan. Losing job-based coverage, for any reason, qualifies a person for a Special Enrollment Period. The application must be made within 60 days of losing coverage, and coverage can start the first day of the month after the old coverage ends.
• COBRA continuation coverage. COBRA lets a former employee pay to stay on the old employer's plan for a limited time, usually 18 months. The individual usually pays the full premium plus a small administrative fee.

A spouse's employer plan may be a third possibility.

Health and dependent care accounts

A health savings account (HSA) belongs to the individual. In the words of IRS Publication 969, an HSA is "portable" and stays with its owner after a job change. Whether new contributions can be made depends on having qualifying high-deductible coverage. See HSA basics.

Flexible spending accounts work differently. They are tied to the employer, and unused balances are often lost after employment ends. The plan's rules say how long expenses can still be submitted.

Paperwork that is easy to forget

• Beneficiary designations. A new retirement plan and new life insurance each need their own beneficiary form. Forms on file at the old employer do not carry over. See beneficiary designations.
• Tax withholding. A new Form W-4 goes to the new employer. A mid-year change in pay can leave withholding too high or too low for the year.
• Life and disability insurance. Group coverage usually ends with the job. Some policies can be converted to individual coverage within a short window.

People who are leaving because of a layoff face some additional questions, covered in laid off: what happens to your retirement accounts and benefits.