Financially Optimizing Mid-Year Job Changes
Financially Optimizing Mid-Year Job Changes
Double Dipping Back Doors, FSAs, and Other Job Hopping Benefits
The meme for millennials (and you gen-Z’ers too) is that we are known for frequent job hopping. So what better than learning how to squeeze a little bit more out of those mid year job changes. I originally started writing this article earlier in the year while the economy was still hot and the majority of the FAANGs were still in aggressive hiring mode. The aggressive hiring has definitely pumped the brakes a bit and with it the reasons people may find themselves wanting to learn about this topic.
Perhaps you found yourself exploring new opportunities after the total compensation drops many of us saw after their company stock tanked. Or your company started enforcing a return to office policy and you really needed location flexibility after relocating for remote work. Or in what is seeming to become a bit more common recently, you find yourself looking to find the bright side of a less than amicable exit from your prior job. Whatever the reason, there are a number of really interesting and less well known benefits that you can only take advantage of when you switch jobs mid-year.
Double Dipping After Tax 401k
This is by far my favorite job switching financial benefit. There is an interesting qwerk in a lot of benefits that deal with the IRS that open up interesting opportunities for mid-year job hoppers. The key thing to look for are benefits that have limits that are tied to your employer vs directly to you as an employee.
Because of this qwerk if you max out your 401k at 1 company, including the after tax, you can still max out your after tax at your new employer! Double dipping the coveted mega back door roth.
Example:
Debby works at Meta and has maxed out their 401k, company match, after tax.
$20,500 (Pre-Tax 401k) + $10,250 (Pre-Tax 401k Meta Match) + $30,250 (After-Tax) = $61,000
Now Debby leaves Meta and joins Google. Debby can’t take advantage of the company match by contributing to their traditional 401k but in theory could steer their contributions towards their after tax (mega back door roth) for up to a full $61,000.
Bringing Debby’s total 2022 contributions to: $122,000 with a super charged $91,250 into their Roth via After Tax -> Roth (mega back door roth roll over).
Whether you can do this to the full amount will vary based on the employer. For example Meta has a hard cap on After Tax contributions of $30,250 meaning that for those joining Meta from Google where they already maxed everything out they can only contribute $30,250 into an after tax.
Hypothetical After Tax Speed Run?
Double dipping is for rookies though. What about triple or quadruple dipping? In theory this would be possible if you were able to string multiple W2 jobs in a year in addition to owning your own company. This is actually not unheard of in the medical community where Dr’s frequently work multiple W2 jobs at the same time between hospitals in addition to their own practices. Please see White Coat Investors post on all the fun Dr scenarios.
FSA
Flexible Spending Accounts are employer based accounts where you contribute pre-tax money into an account for use on medical expenses. FSA limits are $2,850 per year but are again tied to your employer. One interesting thing about FSA is that you instantly have access to the full amount January 1st even though the contributions to fund it will come out of your paycheck in equal portions over the year.
Example:
During October 2021 Debby set their FSA contribution amount for 2022 to the max of $2,850. In January they have Lasik and end up using the full amount and getting reimbursed the $2,850 right away in January. Debby has only paid ~$220 so far. If they left the company they wouldn’t need to pay back the difference between how much was spent and how much was contributed so far. Then at Debby’s new company they can now once again contribute up to the full $2,850. Important to note that this will come directly out of your paycheck based on the remaining paychecks in the year. It is also use it or lose it with the ability to only roll over $570 into the next year (with some minor exceptions your company can opt into just for 2021/2022).
This doesn’t apply to dependent care fsa’s which have annual limits and can only be reimbursed as the contributions are made (vs everything being available from day 1 on the FSA).
Related to FSA’s are HSA’s. A helpful note on HSA’s by Alex Crouch, CFP “Another thing that often comes up during a job change is HSA’s and pro-rated contributions if you leave halfway through the year. If you join another HSA plan it doesn’t matter - you can still max it out.”
Vision Benefits
Nearly everywhere I have worked so far has offered vision plans through VSP. These are also tied to the employer. So if you work at Meta and are in their premium VSP plan. Each year you can pick up two pairs of $300 glasses/sunglasses. Then if you left to join another company who also had the same benefit you could pick up 2 more sunglasses/glasses! So it's always good to try and max out those VSP perks if you can prior to leaving.
Employer Specific Perks
There are also a large number of employers who have wellness benefits that will reimburse you for anything from gym memberships, massage, bikes, skis….
Meta Specific Benefits to Max Out:
$3,000 per year Choice which can be used on wellness, childcare, financial planning student loan payments, pet day care…. These are available from day 1 and refresh each year.
Remote workers also receive $1,100 per year in remote work.
Other Benefits
I also reached out to Joe Marshall of Coastal Capital Advisors to see if I was missing anything. He added a few major items I originally glossed over.
“Can't emphasize the FSA piece enough - if you plan it right, you can get all sorts of "free" medical benefits
Plan for your old 401k - 4 options: roll it over to IRA, roll it over to new 401k, leave it where it is, or cash it out (don't recommend the last option)
Review your company life and disability insurance. Perhaps one company had enough benefits but the new company doesn't - you might need additional coverage
Ask what kind of payout your job will give you. Depends on the company and the policy, but sometimes, you may receive a cash payout for unused benefits, like vacation days (Andre: California requires payout of unused PTO, Texas does not require it).
Current Market Conditions
Looks like we are once again in a bear market…. again marking a -20% decline this time in the DOW (prior bear markets were based on S&P so in reality this is either silly media or a double bear).
The actions I am taking are the same this time around
Audit your emergency fund. Please prioritize 3-6 months expenses, more if you have dependents or a single income household.
Look for tax loss harvesting opportunities. It should not be too hard.
Keep investing as usual. The average length of a bear market is 289 days.
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