tl;dr:

• When I thought I was changing jobs this year, I compiled a list of money making and savings hacks to take advantage of when having more than one employer in a year. The tricks I found were:
  • You can double dip on 401k matches and mega backdoor contributions.
  • The once-in-a-lifetime operation of rolling an old 401k to IRA opens up savings and cash back opportunities, and is worth keeping for the right time.
  • You can drain two sets of annual corporate benefits.
  • Taxes on any money clawed back by your employer might be refundable.
  • COBRA can act as a backup insurance option that you only pay for if you need it.

Intro

This is a (slightly edited) copy of a guest post I wrote for Miles Earn and Burn, a churning focused newsletter I love and have followed for years.

This May I was offered a severance package at my work, which I took. I then un-took the package a few months later (it’s complicated). When I thought I was going to be changing jobs, I started figuring out how I would optimized the process. I compiled a list based on my past experiences, advice from friends, and a ton a research. This post is the result of all that research.

It should go without saying, but I’m just some random dude on the internet that isn’t a lawyer or accountant (and more importantly isn’t your lawyer or accountant). I’ve done my best to cite these tricks to reliable sources, and to include my own experience where I have it, but make sure to do your own research and understand the consequences of what you’re doing before blindly applying tips in this post.

401ks

Two 401k Matches

Many employers offer to match the money you contribute to your 401k each year. Those matches apply to an overall per-employer limit ($69,000 for 2024) not your personal limit ($23,000 for 2024). Having two employers gives you the opportunity to get two full matches. Let’s imagine this scenario:

• Employer 1 offers a 50% match on contributions (up to some fraction of your salary), and you’ve earned enough for up to a $7.5k match on 15k contributions
• Employer 2 offers a 50% match on contributions (up to some fraction of your salary), and you will earn enough for up to a $5k match on 10k contributions

There are multiple ways to optimize this scenario:

• Easier, Less Profitable Way – Limiting Contributions at Employer 1: You could limit your contributions to Employer 1’s plan to $15k, so you maximize the match without going over. Then when you join Employer 2, you can use your remaining space to contribute $8k, getting $4k of your possible $5k match. This leaves some money on the table, but nets you more than if you’d just maxed your 401k at one or the other employer.
• Riskier, More Profitable Way – Excess Deferral + Corrective Distributions: You could contribute $15k to Employer 1’s plan and $10k to Employer 2’s plan. This would put you in a situation where you’ve achieved the maximum match, however, it also puts you $2k over your $23k personal limit and means you’ve made an Excess Deferral. The consequences of an Excess Deferral are double taxation on that money, and potentially additional penalties, which probably outweigh the value of the additional match. You can avoid the double taxation and penalties with a Corrective Distribution that removes $2k from Employer 1’s plan. The catch is that Employer 1’s plan may not be willing to provide Corrective Distributions, or Employer 1 may attempt to claw back the match. Before attempting this method, you should confirm your plan supports Corrective Distributions and you should be prepared to really pay attention when filing your taxes.

Note that there are plenty of other nuances of 401k plans that might affect your personal results, such as true ups and vesting schedules. Make sure you know both plans inside and out and have thought it through before attempting.

Two Mega Backdoor Contributions

The mega backdoor roth is the lesser-known big brother of the backdoor roth, and it lets you sock away tens of thousands of dollars through your employer’s 401k plan. An even lesser known thing is that because mega backdoor contributions are not Elective Deferrals, they’re only subject to the overall per-employer limit ($69,000 for 2024), not your personal contribution limit. That means if you change employers through the year –and both plans support it– you can do the mega backdoor roth twice.

Saving a 401k to Transfer

When leaving a company, you often have three choices for what to do with your 401k:

1. Keep it with the current plan administrator (beware: there may be fees)
2. Roll it into an IRA
3. Roll it into your new 401k plan

There are many pros and cons to each that are beyond the scope of this post (eg. IRAs have fewer bankruptcy protections than 401ks), but here are two reasons you might want to hold off on rolling your old 401k into your new plan:

• You can sometimes roll a 401k into an IRA to get relationship benefits at banks:
  • For example, I used an old 401k to get to the next relationship pricing tier on my mortgage, saving an additional 1/8% on my mortgage rate. Note that including retirements in mortgage relationship pricing is not the norm, and Citi is one of a few banks I found that did that.
  • Bank of America will allow you to count IRAs towards their Preferred Rewards relationship tiers, which get you bonus credit card points and other benefits.
• You can sometimes find significant bonuses to bring an IRA to brokerages. For example, Robinhood has a 3% match right now (beware they require you to keep the money there for 5 years)

One thing to be aware of if you plan to use one of these tricks is the pro rata rule. If you do backdoor roth IRA contributions, the rule can create negative tax consequences if you leave your pre-tax money in an IRA through the end of the year. My personal workaround was to roll my old 401k into an IRA to get the Citi relationship pricing, and then roll the IRA into my new 401k a month later (all within the same year).

Using up Annual Benefits

Many companies have miscellaneous benefits that reset to full at the beginning of the year, and have a use-it-or-lose-it model. Examples include commuter cards and FSAs. Many benefits will cease to be available once you leave, and others will have a limited window to submit expenses after you leave. Make sure to keep track of the deadlines for these accounts, and drain them.

Note that some benefits like FSAs are based on paycheck deductions that happen throughout the year, but the full amount may be available in your account starting on Jan 1. I don’t believe there are laws governing this, but on departure my company doesn’t claw back FSA spend that exceeded paycheck contributions. If this is the case at your company an you know you’re leaving far enough in advance during open enrollment period, you could max out your FSA contributions to take advantage of this edge case.

Tax Refunds on Clawbacks

If you get any money clawed back when changing jobs (eg. a signing bonus that didn’t fully vest), keep track of it. If you previously paid income taxes on that money, you may be able to deduct the clawback from your income. I personally was able to deduct a $14,000 clawback for the 2019 tax year and had my return accepted with no audit, but this may be a scenario where you want an accountant for CYA purposes.

COBRA for Health Insurance

Insurance from your old job usually lasts to the end of the month that you left. If you don’t start your new job by then, COBRA is a program that lets you pay to continue your old coverage. You have 60 days from when your coverage ends to request that continuation of coverage under COBRA, and the coverage “is always retroactive to the day after your employer coverage ends”. You pay the full cost if you do elect, but if you have a short gap in insurance, you can hold off on electing for COBRA until you know if you happen to need it or not. If it turns out you did need it, elect after the fact and be covered. If it turns out you didn’t need it, you’ve saved on the cost of insurance.