How to Handle Financial Transitions

Contributed by: Timothy Wyman, CFP®, JD Tim Wyman

Kaboom! You are a Baby Boomer or Gen X-er providing loyal service to your employer for 10, 20 and maybe even 30 years and now you find yourself in a period of transition. Let’s face it – a career transition or period of temporary unemployment or underemployment can be a bit frightening and life altering. As I have worked with folks over the last 25 years, many of them going through a major change, I have come to appreciate the additional complexities with such changes. I have witnessed otherwise rational and intellectual behavior be replaced with confusion and thought paralysis – some leading to regrettable long term decision making.

Fortunately, I have also worked with other folks and watched them put plans and plans of action into place to weather the storm. As one of my favorite sayings goes, “Life isn’t about waiting for the storm to pass. It’s about learning to dance in the rain.” People can and do survive periods of financial change and you can too.

There are some specific financial issues for those experiencing a transition.

First, I’d like to introduce you to two concepts or strategies that I have picked up over the years from the Sudden Money Institute. The first is to simply allow or give yourself permission to withhold long term decisions for a period of time, usually as long as 6 months. Decision making can be impaired in times of significant change due to stress– so don’t feel that you have to decide everything right away. Think of this as the Six Month No Decision Zone.

Now, working in a six month decision free zone doesn’t mean you shouldn’t start planning.  Life continues and plans need to be made as there are many details associated with a life transition. So, the second strategy in decision making is the “Now - Soon - Later list”.  Simply write out all of the things you need to address – but prioritize them. By writing them down, you free the mind from constantly having to think about them knowing you have it on your list to address at the appropriate time and allow you to focus on what matters now.

How about some financial strategies relevant to a career transition?

On your Now list you might address Cash Flow Strategies. While you may not have required a working budget in the past, this may be a time to develop a budget and also determine any short term cash needs. If you determine that reducing spending/expenses is in order, take a tip from Stephen Covey and focus on the Big Rocks. The big rocks when it comes to spending are houses and cars. These two areas consume the majority of the average family budget – and to make a real impact on the overall level of spending these two areas need to take center stage. 

If very short term funds are needed you might consider a 60 day IRA rollover, which can be done once every 12 months*. Another strategy to get at funds if needed is a little known rule for qualified plans (think 401k) that allows folks who separate from service after age 55 to take funds without incurring the 10% excise tax (normal income taxes will apply). Lastly, cash value life insurance policies can be a source of short term funds as many times as the loan provisions are attractive.

For example, let’s say a couple, John and Sally, both age 57, and John has recently left his employer after 20 years of service. John’s initial prospects for a new role have become a bit less clear after three months. John and Sally feel that they will need some additional income for family living expenses. Even though John’s financial advisor suggested he roll his 401k immediately to an IRA, John followed the six month no decision zone strategy. Because John left his 401k intact he can withdraw funds without incurring a 10% penalty. 

Debt doesn’t have to be one of the bad four letter words – but in financial transition special care should be taken. One type of loan to consider is a Securities Based Line of Credit that uses taxable investment assets as the collateral. Rates, while variable, are very competitive with other forms of financing and are not tied to one’s house. 

Employee benefits and the conversion or replacement of certain benefits might be appropriate on both the Now and Soon list. Health care coverage in particular is an immediate need or on the Now list. Cobra might be an option if you worked for an employer with greater than 20 employees. The health care exchange may also be an option along with substantial subsidies based on income. On the Soon or Later list you might review life insurance portability as many times you will have as long as 12 months to make a decision.

A job transition can lead to both pitfalls and opportunity in the area of income taxes.  First, you want to be sure that you have adequate withholding on any severance pay. Sometimes, in the year one leaves an employer their income is higher than normal; meaning in that year their marginal rate will be higher. Additionally, if you have Stock Options or Employee Stock Purchase Plans you may be required to sell the stock at termination and not able to control the timing of income taxes. Essentially, this is a critical time to manage your bracket a strategy I like to call Bracket Maximization.

There are also some potential opportunities to consider during a period of unemployment when your income is lower than what you expect it will be in the future. For example, there is a special 0% capital gain rate for those under the 25% marginal tax bracket; which is about $75,000 for a married couple filing jointly. So, while most of the time a tax LOSS harvesting strategy is recommended, this might be a time to harvest GAINS. A low income year might also be a good time to accelerate IRA distribution for consumption or via a Roth IRA conversion.

Now let’s say a different couple, Tim and Mary, are 57 and 59 and fortunately have done a good job over the years saving, including establishing an emergency fund. They fully expect to be able to cover one year of expenses in the event Tim doesn’t find a new role soon. When Tim is working, they earn roughly $200k and are in the 25% marginal tax bracket. In 2016, they expect to have income of roughly $50k placing them in the 15% marginal tax bracket. Two opportunities they should highly consider include harvesting the capital gains of stock they received as a gift years ago and converting some IRA funds to Roth IRA within the 15% marginal tax bracket.

As pension plans continue to go the way of the dinosaur, most workers today use the 401k as their main retirement savings vehicle. Twenty years ago I used to say that one’s house is probably their largest asset – today it is probably their 401k account. Why is this significant? As your largest assets it needs to be managed prudently and as a large asset other people are interested in it. There are three main strategies, however, in dealing with a 401k after leaving an employer. All three may be appropriate depending on YOUR circumstances. For example, if you are over 55 but younger than 59.5 and might need income, leaving you 401k in the current plan typically makes the most sense. If you are 50 and may need to pay health care premiums while unemployed, you might choose an IRA rollover so you can avoid the 10% penalty on early withdrawals*. If you have a new employer you might consider rolling it to the new plan so you have immediate funds for a loan (up to $50k) if needed. Whatever your situation, it’s best to work with a trusted advisor to be sure your needs are taken into consideration.

Do you own company stock in your 401k? If so, STOP. The nuances of a strategy called Net Unrealized Appreciate is beyond the scope of this blog post. If you own company stock please review this before making ANY change to your 401k. The long term consequences can be quite considerable, and if you roll the 401k to an IRA or new employer you will have lost the potential benefit forever.

What might a Now – Soon – Later list look like? Well, your situation is unique and will vary, but here is an example:


  • Put on your dancing shoes
  • Make a 6 month budget – if married communicate
  • Secure health insurance via COBRA or Health Care Exchange
  • Address Stock options and ESPP plans


  • Get life insurance loan/withdrawal forms
  • Convert employer life insurance (especially if health concerns)
  • Review current year tax planning pitfalls and opportunities


  • Review 401k strategies
  • Review beneficiaries

When careers and employers change, life changes. When life changes money changes. A transition provides both pitfalls and opportunities. Good luck on your journey and if we can help you navigate the changing seas please feel free to call upon us.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc.® and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

*If you decide upon a 60 day IRA rollover the full amount distributed to you must be deposited into an IRA or another qualified retirement plan within 60 days, if the full amount is not deposited into a new plan the differential amount will be handled as a withdrawal and income taxes (and a possible penalty if under the age of 59 1/2) will apply.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Timothy Wyman and are not necessarily those of Raymond James or Raymond James. Every investor's situation is unique, you should consider your investment goals, risk tolerance and time horizon before making any investment or withdrawal decision. Prior to making an investment or withdrawal decision, please consult with your financial advisor about your individual situation. Examples provided are hypothetical and have been included for illustrative purposes only. Be sure to consider all of your available options and the applicable fees and features of each option before moving your investment and/or retirement assets. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult atax advisor before deciding to complete a conversion. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Raymond James is not affiliated with Stephen Covey or the Sudden Money Institute.