THE COLOR OF MONEY
Changing jobs also means an opportunity to reassess your finances
By Michelle Singletary
In addition to resolving to get their finances straight, many folks see the new year as a time to get a new job.
In fact, 40 percent of workers said they plan to change jobs in 2004, according to a survey by CareerBuilder.com, an online job search company.
The survey, "Plans for 2004," was conducted from Nov. 18, 2003, to Dec. 4, 2003, of more than 1,900 workers.
And why are people so eager to leave their present jobs? Somebody didn't show them the money, so they are showing themselves to the door.
Sixty percent of surveyed workers did not receive a bonus in 2003 and 40 percent did not receive a salary increase, according to CareerBuilder.
The vast majority of workers received a salary increase of 5 percent or less; only 18 percent received an increase of 10 percent or more. Of those who did receive a salary increase, 45 percent indicated that the amount did not meet their expectations. For these workers, 46 percent plan to change jobs this year.
If you do land a new job, start it off right by doing the following:
Arrange to have a set amount of money taken out of your paycheck for savings. You can do this automatically by directly depositing the money into a bank or credit union account. If you got a raise along with the new job, this is the perfect opportunity to increase your savings. Look at it this way: You were living off the old pay so any raise you get could be used to build up your cash reserves.
When you're filling out your W-4 tax form, take time to do the math so that you don't have too much money taken out. Far too many employees follow the theory that getting a tax refund check is a good thing. It's not. In fact, according to the IRS, the average taxpayer who gets a refund is paying approximately $40 too much every week in withholding.
If you have money in a tax-deferred retirement fund, don't cash out. This is probably one of the biggest mistakes people make when they change jobs. Hewitt Associates, a human resources outsourcing and consulting firm, found in an analysis of 160,000 employees that 42 percent cashed out of their 401(k) plans when they changed jobs. The highest incidence of cash distributions was among employees aged 20 to 29 (50 percent). If you have a $5,000 balance, it could grow to more than $50,000 in 30 years (at 8 percent). However, if you take the $5,000 in cash, you receive only about $2,850 of your balance after taxes.
If you (smartly) decide not to cash out your retirement money, do what's called a "direct rollover," which will send the money directly from your old retirement account into an IRA. This keeps it tax-deferred. You should know that if you get a distribution check — even if you plan to roll it over into an IRA — your former employer is required to withhold a mandatory 20 percent for federal income tax purposes. You will have 60 days to deposit the money to avoid any penalties, and when you make that deposit you have to come up with the missing 20 percent. For example, let's say your 401(k) had $100,000 before distribution. To qualify for a tax-free rollover, you would have to come up with $20,000 and deposit it as required together with the $80,000 distribution check you received.
If your new employer offers a match for a retirement plan, at least put in enough money to get the company's contribution.
Finally, if you are planning to get a new job in 2004, look at this change as an opportunity to get a fresh start on your finances as well.
While Michelle Singletary welcomes comments and column ideas, she cannot offer specific personal financial advice. Write Michelle Singletary, Washington Post Writer's Group, 1150 15th St. NW, Washington, D.C. 20071.
