Losing Your Job

IF YOU LOSE YOUR JOB, you may want to consolidate your 401(k) money in an IRA and you might continue your current health benefits by taking advantage of COBRA coverage, just like those who are changing jobs. But also consider these other steps:

Prep your finances for hard times. If you have an inkling that layoffs are in the works, save whatever you can, pay back 401(k) loans, and trim the balance on your credit cards and home equity line of credit. Don’t, however, rush to pay off car loans and student debt. While you can always run up the balance again on your home equity line of credit and on your credit cards (though it isn’t advisable), you can’t “re-borrow” your auto and student loans.

Slash your living expenses. Instead of opting for COBRA coverage, see whether you can trim your health insurance premiums by purchasing a policy through your state’s insurance exchange and perhaps qualify for a premium tax credit. Also, cut out discretionary spending, so you only have fixed costs to worry about. That way, you should be able to make your savings and any severance payment last longer.

Apply for unemployment benefits. Depending on state law, if you receive a severance payment from your employer, you may not be immediately eligible to receive unemployment benefits. Still, apply as soon as you lose your job, so payments start once you’re eligible.

Manage your tax bill. Because you have lost your regular income, you may find you’re in a surprisingly low tax bracket. To take advantage of your low bracket, think carefully about the timing of stock sales and any retirement account withdrawals. For instance, if you are laid off late in the year and you are compelled to dip into retirement accounts to pay living expenses, the tax bill may be lower if you delay any retirement account withdrawals until after Dec. 31, at which point it will be a new tax year—and your tax bracket may be far lower.

Next: Working for Yourself

Previous: Changing Jobs

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