By Tim Klepaczyk
Most people are unable to contribute to long-term investments when in career transition. More often they’re scrambling to find the funds to cover expenses. Few people have such a low overhead that it is not a concern.
However, you still need to pay attention to your long-term financial goals. If you have the means and have been smart you will be prepared beforehand with a “rainy day” fund – several months of ready cash in a money market or savings account. This helps avoid selling any investments or cashing out of a 401k plan, which only adds to the cost of a jobless period. Unfortunately, not everyone is so well-prepared. Even if you are, there are still more financial tips to consider.
A company-sponsored 401k plan that matches a portion of your contribution is generally one’s best investment option while employed. One should take advantage of such a plan first. Your second-best option is generally a Roth IRA. Any additional savings should go to a Roth IRA next.
While loss of a job will end a company-sponsored 401k plan, and cash flow needs may require suspension of Roth IRA contributions, the Roth IRA is still available to you. If you have additional after-tax investments you should consider selling and transferring enough to continue maximizing your Roth IRA contributions. Although your net worth (disregarding investment returns) will remain flat, you gain the benefit of no tax on the investments in the Roth IRA. Remember though if possible to sell investments that will balance capital gains and losses to avoid extra taxes.
These are a couple of valuable investment lessons I have learned from transition periods. Put them to good use to minimize the impact of a career transition period on your financial situation.
Tim Klepaczyk is an RF & microwave engineer with over 20 years of experience in applications & sales and product design & validation. He also loves writing.
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