Timing an end of year resignation -unintended effects on benefits?

November 21, 2021 1:40 AM

With a great sigh of relief, I'm moving from a job I've come to dislike to one I'm very excited by. I just received the offer and am now trying to figure out a resignation date and start date. The day before the offer, I also signed up for the FSA at my old job... this has made me wonder about how to time my last day to my best advantage with regard to medical, FSA, and anything else I may not be thinking about.

Some additional variables: this is in the U.S, employer in New Jersey, and for various reasons I have to provide at least 30 days notice, it's a full-time, exempt job. I could time my notice so that my last day is December 31st, or the end of first week of January, the 7th. I anticipate a vacation payout for my unused vacation days regardless of the timing of my last day. Would either of these dates effect my benefits in ways that I haven't anticipated or have tax implications? E.g. impact on 401k, FSA, etc. I know that the advantage of a January end date is that I would likely be able to keep health insurance coverage for January without needing COBRA, but not sure what else might be effected.

posted by anonymous to Work & Money (4 answers total)

Don't know your pay schedule but you will probably have one prorated check in January if you quit in January.

401k will come out of this if you've got a deferral set up. If you're someone who maxes your 401k every year, it's going to be on you to keep track of your contributions and do the mental math to make sure you don't overcontribute in 22. It's not your new employer's responsibility to track that balance for you. Your tax liability is your own. Don't go to your new employer's payroll person on December 30 2022 and tell them you did an oopsie. Figure out what you need to do to manage your own contribution at the end of Q3.

Even if your current employer coverage ends at the end of the month (you better double check this), generally FSA and HSA contributions stop on your term date. Which means you may* or may not have an FSA contribution on your January check. FSAs are real fussy. If you are enrolled in an FSA on Jan 1, then you are enrolled in the FSA for the full plan year, regardless of if you switch employers. You can't participate in an FSA and an HSA in the same plan year. Now, there's no way your new employer will know what you had before, so if you decide to enroll in an HDHP with an HSA at your new place, they will let you. It'll only be at tax time when all this shakes out for you. If you have one W-2 with *an FSA contribution, and one W-2 with HSA contributions, well I don't know exactly what happens but the IRS will notice. Once again, your tax liability is your own. My advice is when you give your 30 days (!) notice at your place ask them to please term your FSA enrollment for the 22 plan year. It'll save a lot of headache. (NJ is one of two states where HSAs aren't pre tax so you might stick with an FSA, but even in that case tracking annual maxes and plan changes is a pita.)
posted by phunniemee at 4:53 AM on November 21, 2021 [3 favorites]

When does you FSA plan year run? Is it January-December or some other period? (My company's open enrollment is in August and our plan year runs from September to August.) If you're already in your FSA year (like if it started November 1 or something) then, fun fact, you can use all the money you *would* have contributed to the FSA, even if you haven't actually contributed it yet. So, like, if you were going to contribute $100 a month from November 1 2021 and October 31st 2022, you have $1200 to spend right now and if there's anything FSA-eligible you can stock up on, now's a good time to do that.

I guess if your FSA year starts in January and your final day is January 7th, your annual contribution ought to be preloaded and available for you to use on, say, January 1st, but you'd be cutting it very close and it might not work out. You would want to know the exact details and it really might not be worth it and maybe you don't want to spend your last week at your job submitting time-sensitive FSA claims.

The health insurance bit is dependent on your employer's policies - having it extend through the end of the month is common but not universal. Some places will cut you off on the day you leave, although I hope that's pretty uncommon at places that expect 30 days notice.
posted by mskyle at 5:47 AM on November 21, 2021 [2 favorites]

When I was in a similar position, moving from one large university to another, I found that HR paid health insurance premiums for the month forward (Say January) and once paid it's not rescinded. At the first employer it was the first Monday of the next month. So I scheduled my leave date for the Friday after the first Monday, and timed starting my new position on the last day of January. Insurance at the new employer began the first calendar day of the following month (February 1) and I didn't want to chance of bureaucracy leaving me uncovered for February. In fact I needed that old insurance in the interval to pay for an adult covered child who went into early labor and was hospitalized. I was glad I was so finicky about finding the specifics of coverage.

If you know the dates of pay periods and know when FSA and 401K deductions are made you should be able to figure out the ramifications of scheduling your end date, but after you leave your current employer it could be difficult to submit claims for health-related expenses. Still, pushing your leave date into early the next month to cover health insurance likely trumps any minor potential losses in the FSA. I'm not a financeier, but it seems to me that once money is in your 401k it's yours, whether you leave or stay. The match might be another story depending on the company policy (are you vested?), but any contribution you made is always yours.
posted by citygirl at 8:44 AM on November 21, 2021

At my partner's job, they get a few "personal days" which are not vacation or sick leave days and are just given on the first day of the year. I'd see if something like this applies to you. Also if your last day is in January you'll be getting a tiny tax form from this soon-to-be-former job not just this year but next year
posted by jessamyn at 1:16 PM on November 21, 2021