Changing Careers After Law School (and Why You May Have To)

If a waitress declared she was thinking about a career change, her friends and family probably wouldn’t raise an eyebrow. But a lawyer?

After years of law school, internships, landing a job at a law firm and climbing the ladder there, a lawyer who wants to call it quits likely would get a few questions.

As in, “Are you crazy?”

Or, “What the heck will you do instead?”

And, of course, “How on earth will you ever be able to pay off your student loan debt?”

But a juris doctorate degree isn’t a ball and chain, and just like workers in other careers, lawyers can sometimes decide to move on to something else.

Fortunately, pivoting after law school may be easier than it used to be, and there are some great alternative careers for lawyers out there—if you know where to look and how to position yourself.

Reasons Lawyers Might Consider Making a Career Switch

It might seem shocking that a lawyer would want to make a career change, after all they’ve spent years studying and preparing for this career, but it’s not all that uncommon. Television and film can make it seem like practicing law is a thrilling blend of opening and closing arguments and life-changing verdicts passed down by the jury, but there are plenty of mundane tasks in the mix.

In some cases, legal work can be relatively dull. Instead of high stakes court cases, it can be a lot of reading, research, and paperwork. Sometimes the work can be isolating as a lot of time is spent thinking of ideas and writing alone.

Beyond that, lawyers can face a ton of pressure at work, which can lead to a stressful day-to-day work environment. Lawyers have a lot on their plates: tracking deadlines, handling client demands, staying on the partner track, keeping up with the changing laws and regulations, and more.

Not only can the stress of the job be exhausting, especially at “big law” firms, getting the job done can require long hours—no matter the firm. Combine that with the fact that oftentimes a lawyer’s schedule is out of their control, dictated by the courts or bosses at a firm, it’s no wonder some lawyers are interested in looking for another career path.

As an editorial from The Young Lawyer Editorial Board for The American Lawyer points out, many employers have expectations for their workers and a method for tracking how they’re doing. It might be a sales goal that’s been set at a car dealer, a punch clock for line workers, or a certain number of clicks for an online content provider.

At most law firms, that measure is billable hours. Not how many hours the lawyers actually work, and not the quality of the work, but how many hours they can bill to a client.

“Used appropriately, billable hour standards can set clear expectations for lawyers and supply a dose of objectivity to measuring their contributions, ensuring that comparable work receives comparable reward,” the editorial board writes. “For instance, a lawyer who has had an extraordinarily busy period of firm or client work should be recognized and compensated accordingly.

“But there can be pitfalls. The legal profession is rife with examples of billable hour requirements gone bad. Too common are the stories of law firms with a published hours ­requirement, and then a de facto set of often much higher hourly expectations to advance or demonstrate commitment.”

In a stressful, highly competitive environment, the editorial continues, “Lawyers burn out, retention suffers, and work quality suffers.”

All worth it if the pay is great, right? Except the U.S. Bureau of Labor Statistics reports the 2018 median pay for a lawyer as $120,910 per year—which means half of the lawyers out there are making less than that.

And some are making far less—including contract lawyers that firms are increasingly hiring to perform the same functions as an associate, but without the expensive commitment.

The truth is, many law school graduates could be making a decent living and enjoying themselves more in a different profession.

So How Can You Prepare Your Exit Strategy?

Leaving a career as a lawyer can be a huge decision. If you’re considering making a career switch you might want to think about preparing an exit strategy. Here are some ideas for planning ahead as you think about making the jump from lawyer to the new career of your choice.

Aggressively Paying Off Student Loan Debt

Having a ton of debt hanging over your head might limit your options. Refinancing student loans could be a good choice for those who have higher interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. (Federal loans carry some special benefits that are not accessible
if you refinance into a private loan—such as student loan forgiveness and forbearance—so be sure you know what you’ll lose.)

If you have solid credit and a good job (among other factors), you may qualify for a better interest rate and/or terms with a private lender that can help you get out from under that student debt faster. And some private lenders, including SoFi, consolidate and refinance both your federal and private loans into one new loan with one manageable payment.

SoFi also offers other benefits to its members, including career coaching that could help you transition to your next job. There are a few things you can do outside of refinancing to help you be better equipped to move on when and if you wish—or when something better comes along.

Creating a Budget and an Emergency Fund

Lawyers tend to make decent money right out of the gate (the problem comes later when income can start to stagnate), so it may be wise to avoid spending those years letting your lifestyle rise to the level of your income.

If you haven’t already, two ideas for that relatively high-earning time is to start building an emergency fund and putting together a reasonable budget. If you think your salary will take a hit should you leave the law, you can make it a goal to cut some costs now, before you make your move.

Using Your Time as a Lawyer to Make Connections

Building professional relationships and keeping them going could pay off when you start putting out feelers. Be professional, respectful, and if you decide to ask someone for help, be clear about what you want—advice, an introduction, or a job.

Planning Ahead

Try moving your focus from what you don’t like about your current job to how you might transfer your knowledge, skills, and passion to a new career. Lawyers can make good researchers and investigators, compliance professionals, business analysts, executives, and entrepreneurs. Some go into law enforcement. Many end up in the media or communications.

Can You Have a Non-Legal Job With a Law Degree?

Absolutely. Employers typically know that a law degree can speak volumes about intelligence and work ethic. It’s likely assumed you must be analytical, organized, and good at project management. Plus, you’re aware of the potential legal ramifications of business decisions, which can be really helpful to a company.

Probably the biggest hurdle for most people is simply giving up the dream of being an attorney. But if you can open your mind and look at all the other options, you may find something that makes you just as happy—if not more so.

Want to get your student debt under control so you can more easily move on to your dream job? Check out SoFi to see how refinancing your student loans can help.


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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Facing a Post-MBA Career Crossroads: How To Pull a Successful Career Pivot

You worked hard to earn your MBA and land a prestigious job upon graduation. But after a couple of years in, you might be thinking, Is this all there is? If you’re unfulfilled because you’re not passionate about the day-to-day reality of your job—don’t worry, you’re not alone. Not by a long shot.

Many MBA alumni face this challenge. While going with the highest salary offer to relieve some of the financial pressures of their student loans (and other debt) made practical sense at first, a taste of financial freedom could offer a path that allows them to explore positions better aligned with their purpose and interests.

Simply put, this could mean focusing less on the ROI, or return on investment, of their MBAs, and more on finding engaging, yet still lucrative work. Others may wish to focus on getting married and starting families; as priorities change, career tracks offering flexibility and work-life balance can become more desirable.

If you’re a few years removed from business school and now at a career crossroads, pull out that crumpled career bucket list you’ve hidden in the drawer of your bedside table. It could be a good time to complete some of your professional goals. Here are some tips on developing expert career management skills that may also help you find a great next step.

Living the (Short-Lived) Dream

The typical pathways from business school to traditional roles in finance, consulting, or technology emerge in large part because of a “herd mentality.” In other words, graduates tend to flock toward the same opportunities because it’s what’s expected of them, and certain companies spend some serious money and time courting MBAs.

As a result, few MBA grads may be able to say they accepted their first position connected to their purpose, passions, and interests. Instead, they may think of that first job as a tour of duty—a stint at a prestigious firm to gain some valuable job experience and transferable skills.

Cashing in on a huge signing bonus with a Big Three consulting firm or being wined and dined by corporate big-wigs on Wall Street can seem great at first, but maybe not so much later down the line when young MBA holders begin to feel let down and burnt out; they just want something different.

The good news is there are many career paths outside of the traditional MBA pathways, such as shifting toward human resources, marketing, or financial advising to applying your knowledge in a start-up setting.

This isn’t your parents’ generation; success doesn’t mean sticking it out with the same company for 30 years. The workforce now is frequently on the move. In fact, a study conducted last year showed that 58% of millennials surveyed planned to change jobs.

So changing jobs initially might not be the only time you change jobs (or even career fields) after obtaining your MBA. Seeking advice, marketing your personal brand, developing soft skills, and learning how to take action could all come into play again a few years down the road.

Turning the Career Corner

If you’re feeling stuck and uninspired in your current job, and you aren’t provided opportunities to learn, grow, and set yourself up for long-term success, it might be time to leave. Here are a few ideas that may help you leverage your MBA smarts to manage your career growth going forward:

Being Honest When Seeking Advice

Working with a career coach or a mentor can be a great way to help you identify your goals, and when seeking a big change, committing to complete honesty will help them guide you. Discuss all the reasons why you’re not fulfilled.

Clarify your skills and aspirations so you can craft a new, ideal job description together, and then think about the company culture you desire—the values, beliefs, and practices of an organization that will fit you best.

SoFi provides complimentary career coaching to all SoFi members. These professionals can help you plan your unique journey to transition careers, search for a new job, build a resume, and build your personal brand. When it comes to your career, a little career advice can have the potential to go a long way.

Defining Your Personal Brand

What is a “personal brand”? The term refers to who you are professionally, separate from who you are as an employee of a certain company. If you can find a way to market who you are, then you can communicate why you’d be a strong worker for a different type of job and/or field.

It can be easier to pivot in your career if you’ve consistently marketed yourself and the skills you bring to the table. If you haven’t polished your LinkedIn profile, learned to negotiate salary, and discovered the best ways to articulate your value proposition to recruiters or other firms, get to it!

Here are some suggestions for building your personal brand:

•   Create a personal website or portfolio
•   Prepare an “elevator pitch” about what you do
•   Be active on social media platforms like LinkedIn, Twitter, or Facebook
•   Find ways to network
•   Revamp your resume to reflect your brand

Become a pro at illustrating how the skills learned in your MBA program and applied in your career thus far are transferable to your next endeavor. In particular, it may be especially important to highlight the problems and challenges you’ve solved for past employers. Storytelling can be essential to helping employers see your value clearly.

Keeping on Honing the Soft Skills that Complement Your MBA Degree

Sure, you may have learned how to write a cost-benefit analysis at the first job you landed with your MBA. But you’ve likely also developed plenty of soft skills, or less concrete capabilities, such as communication, leadership, or adapting to new circumstances.

You might be at a loss for how your ability to write a budget report in your sleep will help you land a job in public relations, but your talents leading a group sure will.

Some of the top soft skills employers were seeking in 2019 included things like conflict management, emotional intelligence, time management, emotional intelligence, and communication.

A great personality, the ability to foster trust, and top-notch relational skills, such as being a cooperative and engaged team member, are also all attributes of successful professionals.

Do any of those examples sound like soft skills you’ve acquired at your job or in your MBA courses? These abilities help make up your personal brand, and you can highlight them on your resume, list them under “Skills and Endorsements” on your LinkedIn profile, and talk about them in interviews.

If you find you have strong conflict and time management skills, for example, perhaps you could continue to take on responsibilities at your current job that hone those areas of expertise. If you struggle with communication, you might consider working to improve before you switch jobs to make yourself an even more desirable employee.

Act More, Worry Less

Don’t spend months just thinking about what it might be like to work at a new company or in a new industry; instead, do your research so you feel more confident taking action. If you haven’t pinpointed your passion, it might make sense to reach out to people who are doing things you find appealing; maybe you could set up coffee or lunch to listen and learn.

If you’re a consultant, perhaps talk to entrepreneurs to discover what it takes to run a startup. Be inquisitive; have conversations with alumni and people you follow or admire on LinkedIn to discover what their roles entail and what their company culture is like.

Two years post-degree, you probably have peers spread out across a wide variety of enterprises. Try connecting with them to pick their brains about what they find most engaging about their work and get intel about possible job openings. You just might get turned on to a career trajectory you never imagined.

Taking action doesn’t mean you need to rush the process, though. Yes, you can take measurable steps toward starting a new career, but that doesn’t necessarily mean it’s time to address and stamp your resignation letter just yet. Taking steps towards your goal is simply setting yourself up for success so that when that day does come to make a change, you’ll be ready.

Taking a Risk

Remember, people who enjoy a gratifying MBA-supported career have likely taken a leap of faith somewhere along the way. And let’s face it, if you choose to walk away from a substantial salary, you may face some risks.

So you might have to make some sacrifices, specifically financial ones. If you proceed in a carefully thought out way, however, you can protect your finances and protect your mental health. Here are a few options that could help you prepare for the risks you could face in changing careers:

•   Build an emergency fund in case your income takes a temporary hit
•   Secure a new job before leaving your old one, or at least submit several job applications
•   Volunteer in the field you want to enter to obtain relevant experience
•   Avoid rushing the process
•   Attend networking events
•   Take a class related to your new career field
•   Seek out a career coach

If student loans payments are still a factor, include them in your transition plan. One option to consider is student loan refinancing, which could help those with student loan debt lower their interest rate or secure a more manageable payment plan.

Refinancing won’t be the right solution for everyone, especially those who are enrolled in federal student loan repayment programs like income-driven repayment plans, since refinancing eliminates federal student loans from those protections and benefits.

Those interested in refinancing, however, might want to take a look at what SoFi has to offer. Qualified borrowers can secure competitive interest rates with no hidden fees—plus get access to career coaching, which could help those hoping to make a career change in the future. Those interested in learning more can get a quote to see if they pre-qualify in just a few minutes.

Student loans don’t have to keep you from pursuing your dream career. Learn more about how refinancing with SoFi could play a role in your journey to repaying your student loans.


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Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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How to Open Your First IRA

If you’re considering opening your first IRA, or Individual Retirement Account, good for you! After all, saving for your retirement may be the biggest financial goal you’ll ever set.

And although with a traditional IRA you can’t contribute past age 70 ½, with a Roth IRA there’s no cut off. Either way, you likely have ample time to open an IRA, getting you moving towards that big financial goal.

An IRA lets you invest your savings so that your money will hopefully grow over time into a healthy nest egg.

Plus, it can deliver attractive tax perks and offers you an opportunity to save for retirement, especially if you don’t have an employer-sponsored 401(k) or have maxed it out already. So what are you waiting for?

Opening your first IRA can be a bit like waking up early or eating eight servings of vegetables per day. Even though it could be a smart thing to do, you’re intimidated because it seems really hard—but once you get started, it may not be so scary.

Doing the responsible thing doesn’t have to be difficult. Here’s a step-by-step guide for help in getting into the IRA game.

Steps to Opening an IRA

Step 1: Choosing the IRA That’s Best for You

There are several types of IRAs, with traditional and Roth IRAs as the most common types. Both allow you to put a certain amount toward retirement each year and invest in an array of assets. They differ in several key ways.

Roth IRA Accounts

First, you can only contribute to a Roth IRA if your income falls below a certain amount. For 2019 & 2020, you can contribute up to $6,000 per year if you’re single and your modified adjusted gross income, or AGI, is under $122,000. For age 50 and older you can contribute an additional $1,000.

If you’re married and filing jointly, your AGI can be up to $196,000 in 2020. If you earn more than the designated amount, you can either contribute less money or look into opening a traditional IRA instead.

Second, the type of IRA will affect your tax situation. With a Roth IRA, your contributions are made with after tax income sowhen you withdraw money upon retirement, you don’t have to pay taxes again.

Third, you can contribute money to your Roth IRA at any age. This means that if you are, say, 85 and still earning income, you can still contribute a portion to your retirement account.

Finally, it’s usually easier to withdraw contributions from a Roth IRA than a traditional IRA without being penalized. Yes, there are rules, but they’re not as strict as the regulations for traditional accounts.

If you’re eligible, you may want to go with a Roth IRA if you typically get a tax refund and expect to be in a similar or higher tax bracket when you retire (for example, if you plan to have substantial income from a business, investments, or work). It is recommended that you consult a tax professional to help work through the numbers.

SoFi Invest makes
opening an IRA easy.


Traditional IRA Accounts

If you earn a taxable income, you can open a traditional IRA regardless of how much you make per year.

The most notable difference between traditional and Roth IRA accounts is probably that traditional IRAs allow you to deduct your contributions on your tax returns now, meaning you pay taxes on distributions when you retire.

There are a couple other important differences, too. While you can theoretically contribute to a Roth IRA for your entire lifetime, you must stop putting money in your traditional IRA at age 70 1/2.

You’ll also pay a 10% penalty tax if you withdraw money from your traditional IRA before age 59 1/2, with a few exceptions.

It’s often better to go with a traditional IRA if you pay a lot in taxes now and think you’ll be in a lower tax bracket after retirement than in the year they were made. This is because you’ll be saving on a higher tax you’d be paying earlier (vs. the lower tax you’d be paying later, since you’d be in a lower tax bracket).

Still confused? Consult our IRA Calculator for help deciding which account may be right for you.

SEP IRA Accounts

With the number of self-employed workers on the rise, it’s worth mentioning that there’s a third type of IRA you can consider: a SEP IRA. A SEP IRA, or Simplified Employee Pension, can be set up by either an employer at a small business or by someone who is self-employed.

For employers, it gives them a tax deduction when they contribute to their employees’ IRAs, and also lets them contribute on a “discretionary basis” (meaning that the employer doesn’t have to contribute in years where it’s not as financially feasible for the company.) This option may also allow you to contribute more than other IRAs, depending on your income.

Again, there are several kinds of IRAs, so it’s possible a type other than these three might be the right fit for you.

Step 2: Opening an Account

You can open an IRA at a brokerage, mutual fund company, or other financial services provider, including SoFi Invest®, which makes it easy to open an IRA online and transfer money from your bank electronically.

If you are leaving a job with an employee-sponsored retirement plan, you can roll over your 401(k) into an Traditional IRA to potentially give yourself better investment options and lower fees.

However, it’s important to note that while you can rollover your 401(k) into a traditional IRA and not have to pay taxes on it upfront.

Step 3: Making Contributions

As of 2020, you can contribute up to $6,000 a year to a traditional or Roth IRA, or up to $7,000 if you’re 50 or older. If you take home more than the maximum earnings allowed for a Roth IRA but still prefer a Roth over traditional account, you might be able to contribute a reduced amount.

Check out the IRS’s Roth IRA webpage to determine how much you can contribute. In most cases, you may want to throw in as much as you can up to that amount each year to take full advantage of the power of compound interest.

A retirement calculator can help you figure out whether you’re on track. A quick rule of thumb that many financial advisors use: By the time you’re 30, it’s typically good to have the equivalent of one year’s salary saved.

If you’re rolling money over from a 401(k), there’s no limit to how much you can add to an IRA at that time as this process is simply adding money from your current 401k into an IRA account.

Note that you can withdraw cash without paying taxes or penalties in certain situations (for instance, you can withdraw up to $10,000 when purchasing your first home), but you may not want to treat your retirement account like a piggy bank, because there are limits.

Step 4: Investing Your Funds

If retirement is still a long way out, you may not want to let your money sit around in cash. Because of inflation, letting your money sit around in cash form (even with an interest-bearing savings account) may mean a decrease in its purchasing power over time—making it less likely for you to reach your purchasing goals.

Instead, you may want to consider investing it in a range of well-diversified index funds. Though index funds, like all investing, carries risk of loss, over time they may provide you with potentially better returns.

One possible way to invest is to choose a “target date fund.” This is a type of mutual fund, or a program that combines assets like stocks and bonds. A target date fund is geared toward the year you plan to retire, and will automatically update your mix of investments so they’re more aggressive earlier in life and more conservative as you approach retirement.

Setting up a target date fund is only one way to invest through your IRA. You could also invest in other types of mutual funds, or in individual stocks, low-cost index funds, or exchange-traded funds.

Some people prefer to tackle investing on their own, while others prefer to turn to professionals for help.

Taking the Next Step Now

Getting started on saving for your retirement doesn’t have to be difficult. SoFi Invest® makes opening an IRA easy. Sign up for an investment account with SoFi online, in less than five minutes.

Our technology can help you pick an appropriate mix of investments based on your age and retirement goals, and you can be as involved in the investment process as you want to be.

Going through a human professional or robo-advisor often may involve extra expenses, but SoFi doesn’t assess any management or transaction fees.

And if you have any questions or want personalized advice, you can set up a call with a SoFi Invest® advisor—absolutely complimentary.

Open an IRA with SoFi Invest and track your account completely online.


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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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How to Roll Over Your 401(k)

Just landed an exciting new gig? Congratulations! Making a career move can feel like a serious step in the right direction, not to mention all the cool new office mates you’ve yet to meet.

But while you’re nailing down your first-day outfit and reading over the employee handbook, there’s another important thing to take into consideration: What are you going to do with your old 401(k)?

While it’s totally possible to simply leave your old retirement account where it is and let it grow untouched, there may be reasons to think twice before doing so. Letting your 401(k) lie could mean leaving money on the table… not to mention racking up fees you didn’t even know you were paying.

“I would say the majority of people who have worked at previous employers and changed jobs leave their old 401(k)s,” said Jared Bolduc, a financial planner with SoFi. And unfortunately, this oversight may cause more harm than good.

“When you’re working for a company, they will typically bear the cost of a custodian to maintain the account,” said Bolduc. “When you leave, they typically transfer the burden of that cost to the individual, and you could potentially be paying more than you were before.”

When is a Good Time to Roll Over a 401(k)?

As soon as you leave a job that holds a 401(k) retirement account for you, it’s helpful to understand all the options you have.

In most instances, you have 60 days from the date you receive an IRA or 401K distribution to roll it over into a new qualified plan before triggering tax consequences and one rollover per year is allowed under the rules.

Other than keeping it where it is, you can roll it over into a new 401(k) plan (provided a new employer offers one), cash it out altogether (although you’ll often pay fees and could face tax consequences to do this), or roll it over into a new IRA—an approach many financial professionals recommend doing sooner rather than later.

“Rolling over a 401(k) into an IRA isn’t always the best decision for everyone, but, depending on your unique circumstances, it might make a lot of sense because you get to take control of your money and dictate what it does,” said Bolduc. “It also usually will save a lot of money on fees and expenses when compared to leaving it.”

But before a deep dive into the granular steps you’ll need to take to initiate the rollover, here are some available options. Because after all, everyone’s financial situation is different… and the smartest money moves are often those based on as much information as possible.

Option One: Leaving Your 401(k) Where it Is

As mentioned above, there may be some perils to leaving your 401(k) where it is when you move on to your new gig. Aside from those additional fees you might end up shelling out for, racking up multiple 401(k)s as you meander through a variety of companies over the course of your career could lead to a more complicated withdrawal schedule at retirement.

But is it ever a good idea to let sleeping 401(k)s lie? Sometimes, yes—so long as you know for sure what you’re getting and what you may be on the hook for.

For instance, maybe your old job was with a super-hip, savvy startup that chose a stellar plan with multiple investment options and low administration fees that stayed in place even after you left your job. If you’re happy with your portfolio mix and you have a substantial amount of cash stashed in there already, it might behoove you to leave your 401(k) where it is.

Option Two: Cashing Out Your 401(k)

We get it: if you’ve socked away a good amount of cash over the course of your old job, it may seem tempting to take the money and run. But keeping your retirement savings is pretty darn important if you ever want to actually retire, and besides, you could face pretty serious tax penalties if you do give into temptation.

Because a 401(k) is an investment account designed specifically for retirement, and which the IRS has given certain tax benefits—for instance, allowing you to deduct your 401(k) contributions in the year they’re made—the account is also subject to strict rules regarding when you can actually access the money.

Specifically, if you take money out of your 401(k) before age 59.5, you’ll likely be subject to an additional 10% tax on the full amount of your withdrawal… and that’s on top of the regular income taxes you’ll also be obligated to pay on the money.

Depending on your income tax bracket, that means that making the decision to access your 401(k) funds early may lead to a much bigger tax bill, not to mention possibly leaving you without a nest egg to hang up your hat one day in the future.

Which is why most financial professionals generally recommend one of the next two options: rolling your account over into a new 401(k), or an IRA if your new job doesn’t offer a 401K plan.

Option Three: Rolling Your 401(k) Over to Your New Job

If your new job offers one, rolling your old 401(k) funds into your shiny, new 401(k) account may be both the simplest and best option—and the one least likely to lead to a tax time headache.

That said, how you go about the rollover has a pretty major impact on how much effort and paperwork is involved, which is why it’s important to understand the difference between direct and indirect transfers.

How to Roll Over Your 401(k): Direct vs. Indirect Transfers

Here are the two main options you’ll have if you’re moving your 401(k) funds from one company-sponsored retirement account to another.

A direct transfer, or direct rollover, is exactly what it sounds like: The money moves directly from your old account to the new one without ever leaving the respective custodians’ hands. In other words, you never have access to the money, which means you don’t have to worry about any tax withholdings or other liabilities.

Depending on your account custodian(s), this transfer may all be done digitally via ACH transfer, or you may receive a paper check made payable to the new account. Either way, this is considered the simplest option, and one that keeps your retirement fund intact and growing with the least possible interruption.

Another viable, but slightly more complex, option, is to do an indirect transfer or rollover, in which you cash out the account with the express intent of immediately reinvesting it into another retirement fund, whether that’s your new company’s 401(k) or an IRA (which we’ll get into in more detail below).

But here’s the thing: Since you’ll actually have the cash in hand, the government requires your account custodian to withhold a mandatory 20% tax. And although you’ll get that 20% back in the form of a tax exemption later, you do have to make up the 20% out of pocket and deposit the full amount into your new retirement account within 60 days.

For example, say you have $50,000 in your old 401(k). If you elected to do an indirect transfer, your custodian would cut you a check for only $40,000, thanks to the mandatory 20% tax withholding.

But in order to avoid fees and penalties, you’d still need to deposit the full $50,000 into your new retirement account, including $10,000 out of your own pocket which, needless to say, could be tricky to scrape together. In addition, if you retain any funds from the rollover, they may be subject to an additional 10% penalty for early withdrawal.

Option Four: Rolling Your 401(k) Into an IRA

If your new job doesn’t offer a 401(k) or other company-sponsored account, don’t worry: You still have options that’ll keep you from bearing a heavy tax burden. Namely, you can roll your 401(k) into an IRA, or Individual Retirement Arrangement account—and it’s pretty darn easy, too.

In fact, we offer an IRA program here at SoFi that could be a viable option to transfer your existing 401(k) funds.

You’ll also benefit from the availability of complementary support from real advisors like Bolduc who are there to assist in every step of the rollover process.

The entire procedure essentially boils down to three steps:

1. Open a new IRA for your old account holdings to eventually get transferred into.

2. Contact the company that currently holds your 401(k) funds and request to fill out their transfer forms using the account information of your newly opened IRA. You should receive essential information about your benefits when you leave your current position, depending on various factors (type of plan, reason for leaving position, age, etc.) that can assist you in this process.

3. Once your money is transferred, supervise its management with professionals like SoFi’s team of financial planners, who will work with you to make investments and modifications to your account based on your risk tolerance and needs.

While it’ll take making a few phone calls and doing some paperwork, in the long run rolling over your 401(k) might be a smarter financial move, helping you hit your retirement goals. And who doesn’t want that? If you are wondering where you stand on your retirement goals, try using this retirement calculator to see if you are on the right track.

Not sure which rollover strategy is right for you? SoFi Invest® is all about empowering you and your financial future, and we’re here to help. Schedule a free personal consultation with one of our licensed financial advisors who can answer your questions.

Schedule a complimentary appointment with a SoFi Invest advisor.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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What to Do With Company Stock If Your Company Goes Public

Holding stock in your company when it goes public can be a roller coaster ride. There can be a lot of anticipation as the IPO date approaches, but no one really knows what will happen on opening day or during the weeks that follow. Here’s a look at some things you might expect when your company goes public and the options available to you.

What Happens During an IPO

During an initial public offering, or IPO, a company offers shares of stock for sale to the general public for the first time—hence the phrase “going public.” Shares of the company are given a starting value known as an IPO price, and when trading begins, the price can rise amid investor demand, or fall if there is little demand.

In any case, the stock will now have some type of value on the open market. As an employee, you may have a stake in the company before the IPO through employee stock options, restricted stock units (RSUs), or you may own shares in the company outright.

Employers may offer stock options and RSUs as part of a compensation package to help retain top talent and align employee and company incentives—encouraging employees to work hard to make the company, and its stock, successful.

Stock options give employees the right to buy a specific number of shares of the company, at a set price, by the option’s expiration date.

When company stocks start trading on the open market, depending upon any restrictions, employees can decide to hang on to their shares or sell them and use the proceeds to help meet other goals.

Making It Through the Lock-Up Period

That said, when a company goes public, shares and options are often subject to a lock-up period—typically 90 to 180 days—during which company insiders, such as employees, cannot sell their shares or exercise stock options.

Companies typically don’t want employees to flood the market with their stock, which could have a negative effect on the stock price while the company is getting its feet off the ground. When the lock-up period is over, employees are free to exercise their options and sell their shares.

While you’re in the lock-up period, even if it appears that your stocks are suddenly worth a lot of money, that money isn’t in your hands yet. It may be tempting to start spending as if it is, purchasing big-ticket items or putting a down payment on a house. But a lot can happen between an IPO and the end of a lock-up period. So, as the saying goes, don’t count your chickens before they hatch.

The stock market is volatile, and can involve a high degree of risk. If you spend money you have on hand assuming that you’ll be able to pay yourself back once you sell your stock, you may be in for a rude surprise if stock prices fall before then. It may be better to wait until the lock-up period is over before making any big money moves.

Selling Your Shares

If you have decided to sell, the how and when will depend on many factors, but some things that may impact your decision might be whether you own shares outright, have access to shares through employee stock options or through RSUs, and whether the stock has vested. If you already have shares of company stock in-hand, you can usually sell those as soon as the lock-up period ends.

RSUs, on the other hand, are a transfer of restricted stock shares from your employer to give you a certain number of stocks or grants that vest at a later date. Once it does so, the stock is yours to do with what you will. It’s important to note that when restricted stock vests or is transferred to the employee, the fair market value of the stock is included in the employee’s taxable wages. In some cases, RSUs are not taxed until they are fully vested and the company has IPO’d.

You may also have employee stock options, which function much differently than RSUs. A stock option essentially grants you the right to buy company shares at a predetermined price, known as a strike or exercise price.

Stock options are also normally subject to a vesting schedule, but once they vest, you do not have to exercise your right to buy shares immediately, but all stock options come with an expiration date, the last date the option holder must exercise the options or lose them.

For example, say an employee’s exercise price is $60, but the company stock is worth $50 when that employee’s shares vest. If the employee exercised their stock options, they would still have to pay $60 per share, which is more than the stock is worth at that time.

At this point, the stock option is essentially underwater and its value is negative. The employee might choose to wait to exercise their options until the value of the stock is above the exercise price and they can sell the stocks for a profit.

IPOs can be volatile, with prices swinging up and down. Employees may want to wait for a stock’s prices to stabilize after an IPO to suss out whether it’s the right time to exercise their options.

Options If You Sell

When the lock-up period is over, you may choose to sell your vested shares. In some cases, employees may want to hold on to stock, especially if they anticipate that the price will go up. Other employees may feel they should hold on to stocks out of a sense of loyalty.

However, a concentrated position in any one stock can open you up to risk. If the stock does poorly, it can have an outsized effect on a portfolio. To avoid taking on too much risk, it may make sense to use the proceeds from the sale of company stock to accomplish other goals. Here’s a look at some of the options you may want to consider.

Diversifying Your Portfolio

As mentioned, holding a concentrated position in any one investment can open your portfolio up to additional or unwanted risk. Imagine for a moment that your only investment was the stock you hold in your company.

If stock prices fall, your portfolio will likely feel the full effect of that downward pressure. Now imagine that you hold stock in 100 different companies.

If any one of them does poorly, the effect it will have on your portfolio will be much smaller.

This is the concept behind diversification. A diversified portfolio holds a mix of asset classes, such as stocks and bonds. And within these assets classes, a portfolio likely holds a mix of investments diversified across factors such as size, sector, and geography.

The individual assets in this mix will likely respond in different ways to different market conditions, which can help reduce volatility. For example, a spike in oil prices might hurt some manufacturing stocks but help petroleum stocks.

Selling shares of your company stock and diversifying among a broad group of asset classes might help reduce market risk and volatility inside your portfolio, leaving you less beholden to how one company performs.

Paying Down High Interest Debt

You may also consider selling shares of company stock to pay off high-interest debt. For example, if you carry a balance on your credit card, you could be subject to interest rates of 14% or more. At that rate, your balance can grow quickly, especially if you’re only making minimum payments.

Paying down high-interest debt and saving on interest payments can have a positive impact on your overall finances.

Investing in a Home

Buying a house requires careful planning, even more so when you plan on using company stock to help you do it. There are a number of factors you may want to consider.

First, you might carefully determine whether buying a home is a good investment. You could start by considering how long you plan to stay there. Buying a home comes with all sorts of extra costs, such as appraisal fees, inspection fees, and closing costs.

Housing prices can vary widely from region to region. Keep an eye on housing values in your area to help you determine whether they are likely to rise in the long term. You may want to check out websites that offer market value trends information for the area you are interested in buying.

If you are planning to sell your shares to purchase a house, consider being prepared to sell as soon as you’ve found a house and have been approved for a mortgage loan. Selling right away can help you lock in any gains and help keep you from being at the mercy of market movements. Lenders will also need to verify liquidation before loan closing if the funds are used in the home purchase.

Selling while you know you have enough money to cover a down payment, for example, will help you avoid the risk that stock prices will drop between approval and closing, which could leave you scrambling to find other assets to make up the difference.

Planning for an IPO

Your company IPO and the vesting of your stock are scheduled events, so you can use that to your advantage. You might want to start making a plan as soon as you can if you decide to go the selling route.

Make sure you understand the tax consequences of holding or selling your stock and make that consideration a part of your broader tax plan.

For example, RSUs vesting according to their schedule after an IPO might bump you into a higher tax bracket, providing an opportunity to mitigate those effects with other tax efficient strategies like funding retirement plans. Talk to a tax professional to learn more.

Set goals that you’ll use your company stock to help accomplish. If you’re diversifying your portfolio, maybe you’ll sell a little bit at a time, whereas if you’re purchasing a home, you might want to sell a larger portion of your stock to cover the down payment.

Want to start investing with no management fees? Check out SoFi Invest.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
IPOs: Investing early in IPO stock involves substantial risk of loss. The decision to invest should always be made as part of a comprehensive financial plan taking individual circumstances and risk appetites into account.

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