How should I financially prepare for a major career change?

David TalleyUpdated December 12, 2025

Quick Answer

Before a career change, build 6-12 months of expenses in savings, understand your health insurance options, and review how the income change affects your long-term plan. Consider the impact on retirement savings, especially if moving to self-employment. Don't forget about unvested stock, unused benefits, and 401(k) rollover options.

Career changes—whether voluntary or not—require financial preparation. Here's how to approach it.

Before you leave:

**1. Build your runway** 6-12 months of expenses in cash. More if your new income is uncertain or you're starting a business. This isn't negotiable.

**2. Maximize current benefits** - Vest remaining stock options if possible - Use FSA funds (they don't roll over) - Get medical/dental work done - Understand COBRA costs

**3. Know your 401(k) options** - Leave it (if balance > $7,000) - Roll to new employer's 401(k) - Roll to IRA (most flexibility) - Don't cash out (taxes + 10% penalty if under 59½)

Health insurance: This is often the biggest concern. Options include: - COBRA (expensive but continues current coverage) - Spouse's employer plan - ACA marketplace (subsidies depend on income) - New employer's plan (waiting periods may apply)

If moving to self-employment:

Retirement accounts: - SEP-IRA: Simple, up to 25% of net self-employment income - Solo 401(k): Higher contribution limits, more complexity - Don't neglect retirement savings just because it's not automatic

Taxes: - Quarterly estimated payments required - Self-employment tax (15.3%) on top of income tax - Deductions available (home office, health insurance, equipment)

Income planning: Variable income requires different budgeting. Plan based on minimum expected income, treat excess as bonus.

The planning exercise: Model scenarios: - What if the new role pays less? Can you adjust spending? - What if it takes 6 months to find the right opportunity? - What if you start a business and it takes 2 years to be profitable?

Our approach: Career transitions are exciting but financially risky. We help clients stress-test their plans and make transitions from a position of strength, not desperation.

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