Leaving Your Job to Be Self-Employed? Your Guide to Retirement & Stock Benefits
Think of your retirement plan as a cozy cabin in the woods - a place where you can relax and enjoy the fruits of your labor after years of hard work.
When you were employed, your company likely offered a 401(k) with potential matching contributions, and you may have had access to other benefits like stock options or an employee stock purchase plan.
It's like they provided the logs for your cabin and even helped you build it! But now that you're venturing out on your own, you'll need to take charge of building your own retirement cabin. Don't worry; it's not as daunting as it sounds.
Here are some tools to help you build your dream retirement cabin:
Adjusting Retirement Savings Goals
Think of your retirement goals as the blueprint for your cabin. You'll need to adjust them based on your new income and expenses as a business owner.
Creating a New Retirement Plan
There are different types of retirement plans, each with its own set of features. It's like choosing between a rustic log cabin or a modern A-frame.
SEP IRA: Easy to set up with flexible contributions. You can even contribute for the previous year, giving you a bit more wiggle room!
Solo 401(k): Allows for larger contributions and offers a few more bells and whistles than a SEP IRA.
SIMPLE IRA: This is typically a good option for those with a handful of employees, but it can also work for solopreneurs.
Traditional or Roth IRA: Super simple to set up and maintain, but with lower contribution limits compared to other options.
Managing Existing Retirement Accounts
You can bring your existing retirement accounts with you, like moving furniture into your new cabin. Or you can keep them where they are, like leaving some belongings in storage.
Seeking Professional Advice
A financial advisor can be your construction manager, helping you navigate the building process and make sure your cabin is sturdy and comfortable.
Equity Compensation: Unpacking the Alphabet Soup
Equity compensation can feel like a bowl of alphabet soup - a jumble of letters that don't seem to make any sense. But with a little guidance, you can easily decipher the ingredients and enjoy a delicious financial meal.
Here's a quick rundown of the most common types of equity compensation:
ESPPs: Employee Stock Purchase Plans are like getting a discount at your favorite store. You can buy company stock at a lower price, which can boost your investment portfolio.
RSUs: Restricted Stock Units are like a delayed gratification gift. You receive company shares after meeting certain conditions, usually based on how long you've been with the company.
LTIPs: Long-Term Incentive Plans are like performance bonuses. You receive rewards based on the company's performance over some time.
What Happens to Your Equity When You Leave
When you leave your job, your equity compensation doesn't just disappear. You typically have several options, depending on the specific type of equity and your company's policies:
ESPPs: You can typically exercise your options (purchase the stock at the discounted price) or let them expire.
RSUs: If vested (meaning you've met the requirements to own them), you'll receive the shares and be taxed on their value. Unvested RSUs are typically forfeited.
LTIPs: Similar to RSUs, vested LTIPs will be paid out, while unvested ones are usually forfeited.
Retirement Plans (401(k)): Your Nest Egg
Your 401(k) is like a nest egg you've built up over time. When you leave your job, you have a few options for what to do with it:
Rollover Options: You can roll it over into a new retirement plan, like moving your nest egg to a different tree.
Leave the funds with your former employer: You can leave your nest egg where it is, but you won't be able to add any more eggs to it.
Cash Out: This is like cracking open your nest egg and spending it all at once. It's usually not the best idea, as you'll miss out on potential growth and may have to pay taxes and penalties.
Early Retirement Considerations: Planning for the Unexpected
If you're thinking about retiring early, it's important to plan for how it might affect your equity compensation and retirement plans. It's like checking the weather forecast before going on a long hike - you want to be prepared for any unexpected storms.
Conclusion: Your Financial Freedom Awaits
Navigating the world of equity compensation and retirement planning can feel like exploring a jungle full of twists, turns, and unexpected obstacles. But with the right guide, you can easily find your way to financial freedom.
If you're ready to take the leap and start your own business, I'm here to help you navigate the complexities of equity compensation and retirement planning.
Schedule a free 30-minute Job Exit call today to learn more about how I can help you achieve your entrepreneurial dreams.
Additional Resources: Transitioning Your Workplace Benefits
