When a client receives a promotion or a raise at work, this change can come with a number of changes that might impact their financial situation.
In this checklist we focus on reviewing the potential financial impact of a raise or a promotion on your clients, including:
Cash flow and income
- Will the client’s income and cash flow change due to the raise or any additional compensation that comes with the promotion?
- Will this change impact their ability to save for retirement and other goals? If so, work with them to increase their savings in areas like their 401(k), their HSA and others.
- In the case of a promotion, does the new job come with added benefits they need to consider?
- These additional benefits might include stock-based compensation or deferred compensation.
Retirement plans and deferred comp
- As part of a promotion will the client now have an equity position in their company? If so, there are a number of planning issues to consider.
- Will the client’s higher income impact their ability to contribute to an IRA? Will their income now prohibit the ability to contribute to a Roth IRA or to a traditional IRA on a pre-tax basis?
- Be sure the client is fully funding their 401(k) or similar retirement plan.
- If the client received non-qualified stock options or restricted stock options as part of their promotion, there are a number of planning items to help them through.
Tax and insurance planning
- The client’s higher compensation may carry some additional tax planning issues. At the very least, they will want to ensure that that their withholding is adjusted to ensure they don’t have a hefty tax payment due.
- Their new income might dictate increases in life insurance coverage and /or disability insurance coverage.
This is a comprehensive checklist of the types of issues that advisors should be discussing with their clients who receive a raise or a promotion at work. This change can come with any number of financial issues, your planning can help the client make the most of this change in their lives.