As each of us go through life, we are faced with transitions – some we prepare for and some we don’t. All of us finish our education at some level and enter the work force. Some of us get married; some start a family. All of these are cultural and natural transitions we go through as a society. Many of life’s transitions we know are inevitable, but they may come up on us unexpectedly or we may not have planned adequately for them. Things such as changing jobs, business succession, divorce, retirement, long-term care, terminal illnesses and the loss of a spouse all require financial decisions that are critical to successfully navigating through these life events.
When you change jobs, you need to decide what to do with the money in your 401(k) plan. Should you leave it where it is or take it with you? Should you roll the money over into an IRA or into your new employer’s retirement plan?
As you consider your options, keep in mind that one of the greatest advantages of a 401(k) plan is that it allows you to save for retirement on a tax-deferred (or in the case of Roth accounts, potentially tax free) basis. When changing jobs, it is essential to consider the continued tax-deferral of these retirement funds, and, if possible, to avoid current taxes and penalties that can eat into the amount of money you’ve saved.
One of the important decisions a business owner must face is when and how to step out of the business – in other words, business succession planning. Do you expect to retire from your business? Do you have a plan in place? What would happen to your business if you were to die today? Do you have children you hope to bring into the business? These are questions only you can answer, and your answers will lead you and your financial and legal advisors to a course of action.
When you develop a succession plan for your business you have two basic choices: you can sell your business, or you can give it away. Once you choose to either sell or gift, you can structure your plan to go into effect during your lifetime or at your death.
While divorce is certainly a time of emotional turmoil, it is typically a time of financial upheaval as well. The financial change brought about by divorce can be particularly devastating to families with children and to older couples who have assigned the career duties to one spouse and the homemaking duties to the other.
If going through a divorce, you should become familiar with the major topics: legal fees, marital property versus separate property, alimony, debt, retirement plans, property settlement, taxation, budgeting and, if you have children, child custody and child support. You should also consider risk management, and, if you’re older, Social Security.
By becoming knowledgeable about these areas, you can provide your attorney with a complete and accurate outline of your wishes regarding the divorce settlement, and you will be able to make an informed decision before signing your divorce agreement.
The transition into retirement is when you are changing from your full-time working years to your retirement years. If retirement is approaching, you may have to make numerous decisions. Your first step is to review your sources of retirement income and estimate your retirement needs. The closer you are to retirement, the more accurate a picture you should be able to get. Even more, you should consider the timing of your retirement and whether you are prepared not only financially but emotionally to be out of the workforce.
When your spouse dies, or if they become disabled or need long-term care, you’ll need to handle numerous financial and legal matters. Even if you’ve always handled your family’s finances, you may be overwhelmed by the number of matters you have to settle in the weeks and months following any of these events. Whether you’re planning a funeral, finding rehabilitation providers, or searching out long-term care solutions, a wealth advisor can provide advice and assistance to help you through this difficult time.
All of life’s transitions have very important financial and tax decisions that will need to be made. Getting competent, timely advice from a qualified, experienced financial professional is critical. It is best to seek out one who works on a fee-only basis, who has worked extensively with others in your situation and who has a network of legal and tax professionals to assist along the way.
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Post Written by: James J. Karchner, CFP®, CPA/PFS