How Layoffs Impact 401(k)s and Budget Planning

What pros wish you knew on day one of a layoff

What pros wish you knew on day one of a layoff? Two things: the money clock starts immediately, and you have more control than it feels like. This isn’t about heroics, it’s about sequencing. In Q4 2025, when open enrollment is live and hiring tends to cool off, those first 30 days shape your runway, your taxes, and how your retirement accounts behave.

Quick gut-checks you’re probably asking yourself: Does my 401(k) evaporate? No. It sits there, but company contributions stop, and the rulebook shifts. Will severance save me? Maybe, but it’s taxable like regular pay. Can I “park” in cash? Yes, and, this year, that’s a feature, not a bug.

• Your 401(k) doesn’t disappear, but timelines start ticking. You can usually leave it where it is, roll it to an IRA, or into a new plan later. Plans can force out small balances, under $7,000, under SECURE 2.0 rules effective 2024. Take a distribution before 59½ and you generally face a 10% early withdrawal penalty plus income tax. Miss a rollover and the 60-day clock can bite you. This is why day one matters.
• Cash preservation beats return-chasing. Your job is runway, not bragging rights. With bills due monthly, sequence risk matters now. As context, cash and T‑bill yields stayed above 5% for much of 2024 while equities whipsawed, so holding cash isn’t “giving up,” it’s buying time. You can always add risk once income resumes.
• Severance and unused PTO are taxable wages. Employers typically withhold at the federal supplemental rate of 22% (37% on amounts over $1 million), per IRS rules in 2024. Social Security and Medicare still apply. Translation: the check can look smaller than you expect, and the withholding may not match your final tax bill, plan a buffer.
• Unemployment benefits are taxable federally. Some states tax them, some don’t. You can ask for 10% federal withholding using IRS Form W‑4V. It’s boring paperwork. It also prevents a surprise bill in April.
• Open Enrollment is happening now. Health choices are money choices. Losing employer coverage triggers a 60‑day Special Enrollment Period on the ACA marketplace, and COBRA elections generally carry a 60‑day window as well. HSAs remain powerful; the 2025 IRS limits are $4,300 for self-only and $8,550 for family coverage (announced May 2024). If you qualify, funding an HSA keeps flexibility while preserving tax advantages.
• Hiring slows in late Q4. Interview cycles stretch, decision-makers travel, and budgets hibernate. Plan for a longer search and stress-test your budget with a 90-120 day runway. It’s not fun, but it’s realistic.

30-day mission: stabilize cash, lock health coverage, decide your 401(k) path, map taxes on severance/unemployment, and set a strict burn rate. That’s it. Fancy can wait.

And yes, I’ve sat with more people than I can count on “day one.” The ones who win don’t try to outsmart the market in week one, they shorten expenses, automate the boring forms, and keep their options open. Sounds dull? It is. It also works.

One more thing, because this trips folks up every time. Can you invest severance aggressively to “make it back”? You can. Should you? Probably not. Markets might rally into year-end, or not; but your rent is due on the 1st either way. Build the runway first. Then, when the offer letter lands (and it will, even if January is more realistic than November), you’ll thank your past self.

Your 401(k) after a pink slip: the mechanics that bite (or help)

The minute HR says “today’s your last day,” your retirement plan shifts from autopilot to manual. Not dramatic, just different. A few mechanics kick in right away: payroll deferrals stop, any unvested employer match usually forfeits as of your separation date (check your vesting schedule), and if you had a loan, the clock starts. And, small point that becomes big, your plan’s rules matter more than generic internet advice. Plans really do vary.

Your menu typically looks like this:

• Leave funds in the old plan (if the balance is above the plan’s minimum, often $5,000). Pro: institutional funds, ERISA protections. Con: one more login, limited investments.
• Roll to an IRA. Pro: broader investments, easier to consolidate. Con: you lose the age-55 rule; early withdrawals before 59½ generally trigger a 10% penalty unless an exception applies.
• Roll to a new employer’s plan (once you’re eligible). Pro: keeps the age-55 rule alive for that employer’s plan? Careful, this rule only applies to the plan tied to the job you left; rolling to a new plan resets that flexibility.
• Cash out. Usually the worst. If a distribution is paid to you, plans must withhold 20% for federal taxes on eligible rollover distributions, and if you’re under 59½, you likely owe a 10% additional tax on early distributions (IRC §72(t)).

The age-55 rule: If you separate in or after the year you turn 55 (50 for public safety employees), you can take penalty-free withdrawals from that employer’s 401(k). Taxes still apply. Move those dollars to an IRA, and poof, the exception is gone. I know, confusing. But it’s one of the most valuable timing levers when cash is tight in a job gap.

Loans: Most plans accelerate them after termination. If the loan isn’t repaid, you’ll see a “loan offset.” Here’s the part people miss: you generally have until your tax filing deadline (including extensions, often up to October 15) to roll over the offset amount to avoid it becoming taxable income (Tax Cuts and Jobs Act, effective 2018). Miss that, and you may owe income tax plus the 10% penalty if under 59½.

Hardship withdrawals exist, but the bar is high. IRS “safe harbor” reasons include preventing foreclosure/eviction, medical expenses, funeral costs, certain education expenses, and casualty losses. They’re taxable, and if you’re under 59½, the 10% penalty can still apply unless an exception fits. Not fun money, this is break-glass cash.

Company stock (NUA): If your 401(k) holds employer stock, pause before rolling to an IRA. Under Net Unrealized Appreciation rules, in a qualifying lump-sum distribution, the stock’s cost basis is taxed as ordinary income now, while the growth (the NUA) is taxed later at long-term capital gains rates when you sell. Roll everything to an IRA by habit, and you usually lose the NUA treatment. This is one of those “run the math first” moments.

SECURE 2.0 still in play, and some pieces matter post-layoff. A few quick hits you can actually use:

• RMD age is 73 (effective 2023). Not a today problem for most, but timing rollovers has RMD implications once you’re there.
• $1,000 emergency distribution (starting 2024): one penalty-free personal emergency withdrawal per year with the option to repay within 3 years; still taxable if not repaid.
• Pension-linked emergency savings accounts (PLESAs) became available in 2024, some plans let you keep a small liquid bucket. Not universal, so check your plan.
• Long-term part-time access improved in 2025 (2 years of 500+ hours instead of 3). If your next role is part-time, eligibility could arrive sooner than it used to.
• High-earner catch-up Roth mandate was delayed to 2026, so your 2025 catch-up mechanics may look like last year’s. Again: plan documents rule.

Timing and taxes (this is where people save real money): If you need cash, pulling from the old employer’s 401(k) in the year you turned 55 can avoid the 10% penalty, while the exact same dollar pulled from an IRA may not. If you take a distribution paid to you, expect that 20% withholding, which is not the tax itself, just a prepayment, and you still have the 60-day window for rollovers if you want to undo a mistake. But a direct trustee-to-trustee rollover avoids that mess entirely.

Last thing, markets. Q4 tends to be noisy with year-end rebalancing and tax moves. If you’re moving accounts now, keep the transfer in-kind where possible to avoid selling in a bad week, then realign once assets land. I’ve seen more wealth lost from rushed, taxable liquidations during a job change than from the layoff itself. Take the beat, read the plan, and use the age-55 and NUA rules where they actually help.

Checklist: get your plan’s SPD, confirm vesting and loan status, map penalty exceptions (age 55, NUA, hardship), choose direct rollovers, and set a calendar reminder for the tax filing deadline if a loan offset is involved.

Cash-flow triage: build a 90-180 day runway, then get picky

This is the pivot from accumulation to protection. The goal isn’t to win the month; it’s to buy time. A clean 90-180 day runway lets you make good decisions slowly instead of bad decisions quickly. I know, I’ve sat with more than a few families on kitchen tables making these exact lists, sometimes with coffee, sometimes with a calculator that’s older than my first Bloomberg login.

Start with a zero-based budget. Every dollar gets an assignment. Pay the essentials first, everything else is negotiable for now.

• Non‑negotiables: housing, food (groceries, not DoorDash), utilities, transportation to interviews/work, insurance premiums.
• Negotiable/pausable:subscriptions, dining out, extra debt principal, elective medical/dental, travel, gifts, hobbies for a bit.

Quick detour because this gets misunderstood: zero-based doesn’t mean spending zero, it means every dollar has a job, even if the job is to sit in cash. Okay, back on track.

Pause automatic investing except match-eligible contributions if you land a new job with a 401(k). Free match is still free money. But until income is steady, conserve cash. Keep Roth/529/after-tax brokerage on pause. It feels weird to stop, I get it, but runways matter more than perfect dollar-cost averaging for a few months.

Call lenders before you miss a payment. Servicers usually have hardship menus if you ask early: mortgage forbearance/deferral, temporary lower payments on auto loans, and card issuer hardship programs. It’s boring phone-tree stuff, but it protects your credit and buys time. Late is expensive. The average assessed interest rate on credit card accounts was about 22% in 2024 per Federal Reserve data, so avoiding a 30‑day late hit and penalty APRs is real money in 2025 while rates are still elevated.

Refill cash from the safest, lowest-friction sources first.

• Sell unused items (locally if you can, no fees, no shipping). Quick $300-$1,000 helps.
• Side work that pays weekly. Short, boring gigs beat fancy ideas when the clock is ticking.
• Use HSAs for qualified expenses you’re already incurring. 2025 HSA limits are $4,300 individual / $8,550 family (plus $1,000 catch-up at 55+). Keep receipts tidy.
• State benefits: unemployment insurance is taxable federally and usually replaces roughly 38-50% of prior wages up to a cap (varies by state; check your state’s schedule). Apply day one; waiting a week costs a week.

Build a runway calculator you can glance at without opening twelve tabs:

Runway (months) = (Cash on hand + Net severance + Net unemployment) − One month of essentials, all divided by monthly essentials.
Example: $18,000 cash + $10,000 severance net + $1,800/month UI × 4 months = $35,200. Essentials $4,400/month → 8.0 months. That math isn’t perfect, but it’s directionally right.

Two notes on the inputs: severance is often “one to two weeks per year of service,” but your offer controls; and unemployment can start later than you expect if there’s a waiting week or severance interaction. I said “net” on purpose, taxes matter. Circling back to credit for a second, because it anchors the whole plan…

Protect your credit score while you wait things out. Pay minimums on time, even if it’s the only thing you do that week. Avoid new high-fee debt. A 0% APR balance transfer can help stabilize cash flow, but read the fine print: transfer fees are typically 3-5%, promos run 12-21 months, and the reversion rate often jumps above 20%, which takes you back to the problem you were solving.

Market reality check. We’re in Q4, rates are still higher than the 2010s regime, and credit is priced like it. That means the runway you build is worth more than trying to squeeze an extra 1% out of a risky yield product. Keep the cash safe. You can get cute with optimization later this year when income stabilizes.

Final nudge: write the plan on one page, stick it on the fridge, tell someone you trust. The math is the math, but accountability keeps you from un-pausing five subscriptions “just for a month.” Been there. Twice.

Taxes in a layoff year: don’t let the IRS eat your severance

Taxes in a layoff year: don’t let the IRS eat your severance. The theme here is coordination. Your severance, PTO payout, unemployment checks, maybe even a 401(k) distribution, each one hits your tax return differently. Stack them the wrong way and you hand over cash next April that you could’ve kept.

Severance and PTO are W‑2 income. They get taxed like regular wages. Most employers treat severance and PTO as “supplemental wages,” and default withholding uses a flat rate. For federal, the IRS flat rate was 22% for supplemental wages up to $1 million and 37% above that in 2024. If your actual marginal rate is higher (say state taxes plus federal put you near 32%), 22% withholding will be short, and you’ll owe at filing. If your income collapses after the layoff, 22% might be too high and you’ll get a refund next spring, but that’s still cash you could’ve used. You can usually adjust withholding on the severance request or via a new W‑4 with HR. Ask. It’s awkward, but cheaper than a penalty notice.

Unemployment is federally taxable. States vary, some tax it, some don’t, but the IRS does. You can request voluntary 10% federal withholding using Form W‑4V (I always forget if it’s W‑4V or W‑4P… it’s W‑4V). If you skip withholding, set calendar reminders to make quarterly estimated payments. The safe harbor rules still apply: pay in at least 90% of the current year’s tax or 100% of last year’s (110% if your prior-year AGI was >$150k) to avoid underpayment penalties. Not perfect for everyone, but it’s a workable guardrail when income is lumpy.

Cashing out a 401(k) is taxable, plus a possible 10% penalty. A straight cash distribution is ordinary income in the year you take it. If you’re under 59½, you’ll likely owe the 10% early distribution penalty unless you qualify for an exception (there are a few, like certain medical expenses, substantially equal periodic payments, or terminal illness, but be careful). Plan administrators also withhold 20% on eligible rollover distributions by default, which isn’t the tax itself, it’s a prepayment. Before you tap it, model the bracket impact. A $20,000 cash-out can push other income into a higher bracket, phase out credits, and bump up Medicare premiums later if you’re near those thresholds. I’ve seen people turn a fixable cash crunch into a 30%+ tax hit. Hurts.

Roth conversions in a low-income year can be smart. If 2025 ends up being a partial-income year, consider converting a slice of pre-tax IRA/401(k) money to Roth. Convert just enough to “fill” your lower brackets without pushing yourself into a higher one. No need to be a hero, surgical is better than aggressive. I’m not going to pretend I memorize every bracket breakpoint; check the IRS tables for 2025 before you press go, and include state taxes in the math. The value is locking in today’s lower rate and future tax-free growth, especially if you expect higher-income years ahead.

Tax-loss harvesting helps outside retirement accounts. In a brokerage account, you can harvest losses to offset realized gains and up to $3,000 of ordinary income per year under U.S. rules. Watch wash-sale rules (30 days before/after for substantially identical securities). This doesn’t create cash by itself, but it lightens the April bill and keeps more of the severance working for you.

Use actual-year limits in your planning. For reference, 2024 contribution limits were: IRA $7,000 with a $1,000 catch-up at age 50+, and 401(k) $23,000 with a $7,500 catch-up. Confirm the 2025 limits before acting, Treasury updates them, often late in the year. Small differences matter if you’re doing year-end Roth conversions or partial contributions after a new job later this year.

Practical flow for Q4 2025:

• Ask HR about severance/PTO withholding method. If it’s the 22% flat, run a quick estimate with your state rate layered on.
• For unemployment, file W‑4V for 10% withholding or set up quarterly estimates. Even a small payment each quarter beats a penalty letter.
• If you need cash, consider a 401(k) rollover to an IRA first, not a cash-out. If you must withdraw, quantify federal + state + 10% penalty before you do it.
• Map your likely 2025 taxable income now. Identify how much room you have in lower brackets for a modest Roth conversion.
• Scan your brokerage for harvestable losses and mismatched gains. Rebuild exposure with similar, not identical, assets for 31 days.

Rule of thumb I give friends: get a one-page tax map for the year, income sources, withholding settings, and estimated payments. If it doesn’t fit on one page, simplify it until it does.

One last thing: interest on the cash you’re holding, 5% money-market yields were common earlier this year, gets taxed as ordinary income. Not a reason to avoid earning it, just add it to the tally. I made that mistake during the 2020 rebound, forgot to add a chunky 1099‑INT, and got a mild love note from the IRS. You don’t need that right now.

Smart moves with rollovers, Roths, and low-income windows

Smart moves with rollovers, Roths, and low‑income windows

If your income dipped this year, that’s not fun. But it does open a window to clean up accounts and pre-pay taxes at friendlier rates. We’ll keep liquidity intact while we do it, because running out of cash to win a tax chess move is, well, not winning.

• Consolidate the right way. Old 401(k)s are clutter. Roll to an IRA or your current plan only if you won’t lose valuable features. Two big ones I see people miss: (1) the age‑55 rule that lets you take penalty‑free withdrawals from the employer plan if you separate in or after the year you turn 55; and (2) access to institutional share classes. I’ve seen S&P 500 index options at ~0.02%-0.04% expense ratios in large plans versus ~0.40% in retail funds, over 20 years that gap isn’t small. Keep the plan if it’s cheaper or more flexible for withdrawals before 59½.
• Stage Roth conversions, don’t lump them. With lower income, convert just enough each month or quarter to “fill” your target bracket and manage ACA premium credits. For 2025, the standard deduction is $15,300 (single) and $30,600 (married filing jointly), and bracket thresholds stepped up with inflation, so you’ve got a bit more headroom to work with. ACA premium caps are still based on income as a share of the Federal Poverty Level with the 8.5% cap in place through 2025 under the American Rescue Plan/Inflation Reduction Act rules. For the 2025 marketplace, exchanges use the 2024 FPL table (48 states: $15,060 for a household of 1; $31,200 for 4). Keep your Modified AGI within your target range so you don’t owe back subsidies at tax time. I’ve watched folks convert $1 too much and lose hundreds, annoying.
• No earned income? IRA contributions get tricky. If you have zero earned income, you can’t contribute to a traditional or Roth IRA yourself this year. But a spouse with earned income can fund a spousal IRA for you (subject to the same annual limit). For 2025, the IRA contribution limit is $7,500 ($1,000 catch‑up if 50+). This is an easy one to miss when paychecks pause.
• Consider the 529 → Roth IRA rollover (new as of 2024). If a beneficiary’s 529 has been open at least 15 years, you can roll up to a lifetime $35,000 into that beneficiary’s Roth IRA, subject to the annual Roth limit and the rule that contributions and earnings from the most recent 5 years can’t be rolled. It won’t help cash flow right now, but it can shrink future RMD exposure (by shifting dollars from pre‑tax retirement money you’ll later inherit to Roth space in the kid’s name). It’s niche, but when it fits, it’s beautiful.
• Keep an emergency buffer, then convert. Money market yields that were ~5% earlier this year have slipped into the low‑4% range at many brokers as rate‑cut odds picked up, but cash still matters. Hold 6-12 months of expenses if a job gap is in play. Over‑convert today and you might need to pull funds back out, which can create taxes and penalties you didn’t need.
• Avoid rollover traps. Whenever you move money, favor trustee‑to‑trustee transfers. That bypasses the 60‑day rule and the once‑per‑12‑months IRA rollover limit (that limit applies to IRA‑to‑IRA indirect rollovers, not plan‑to‑IRA transfers). I keep a simple note: who moved what, from where, to where, and the date, sounds silly; it’s not.

And one more practical pass: model your income monthly, not just annually. Convert a slice, check your ACA estimator, convert another slice. Boring beats messy. If you’re tight on cash, prioritize the emergency fund, minimum debt payments, then modest conversions. The “win” is lower future required distributions and a simpler setup, without torpedoing today’s liquidity.

Quick stat check: 2025 standard deduction $15,300 (single) / $30,600 (MFJ); 2024 FPL for ACA benchmarking: $15,060 (1‑person) and $31,200 (4‑person); ACA benchmark premium cap up to 8.5% of household income through 2025. Those three numbers do most of the heavy lifting in this playbook.

Benefits you can keep (or replace): health, HSA, life, and more

Layoffs blow holes in the benefits package. Patch them fast, Q4 Open Enrollment is here and the calendar won’t wait.

• Health insurance, right now: COBRA is immediate and predictable, but pricey. You typically pay 102% of the total premium (your part + the employer part + 2% admin), and coverage can last up to 18 months for a layoff/reduction in hours. If you elect within 60 days, it’s retroactive to the day after your group coverage ended (you’ll owe those back premiums). I’ve paid COBRA for a month just to bridge a surgery window, painful, but worth the zero‑gap certainty.
• ACA Marketplace timing: Losing employer coverage triggers a Special Enrollment Period, usually 60 days from the loss of coverage. General Open Enrollment typically runs Nov 1-Jan 15 (some state exchanges tweak those dates a bit). If you can wait to start coverage on the Marketplace until the 1st of the next month, that can save a partial‑month COBRA bill. Quick refresher on the math: ACA benchmark premiums are capped at up to 8.5% of household income through 2025 under current law. Using the 2024 Federal Poverty Level for estimating subsidies (still the reference most calculators use right now): $15,060 for a 1‑person household and $31,200 for a 4‑person household. Staying near, but not below, 100% FPL matters if you’re in a non‑expansion Medicaid state.
• Mind the subsidy cliffs (Roth conversions + severance): Any income spike raises MAGI and can cut your advance premium tax credits. Earlier this year I saw someone nuke their entire subsidy with a December conversion they could’ve split across months. The fix is annoying but effective: model monthly income, then adjust conversions or capital gains. Boring beats messy, especially when premiums in many states are up again this year.
• HSA: portable and powerful: Your Health Savings Account stays yours. Keep the account, guard the debit card, and consider investing the balance once you’ve set aside a claims buffer (I keep ~3-6 months of expected expenses in cash inside the HSA). 2025 HSA contribution limits: $4,300 self‑only, $8,550 family; catch‑up at age 55+ is still $1,000. Here’s a cash‑flow trick I like: pay 2025 medical bills with regular cash, save receipts, and reimburse yourself later from the HSA when you need liquidity. It’s legal if expenses were incurred after the HSA was established, just keep tidy records.
• Employer life & disability: These often end on your termination date or at month‑end. Ask HR about portability (keeping group term as term) or conversion (turning it into an individual whole life policy). There’s usually a short window, often 31 days, to elect. If you’ve got dependents who rely on your income, pricing a basic level term policy now is smart. Disability is trickier to replace while unemployed; if you’re going solo, focus on emergency savings and, if applicable, short‑term gigs that keep cash coming.
• FSAs: use it or lose it (mostly): Health and dependent care FSAs generally forfeit unspent funds at termination. Some plans have a grace period or allow a small carryover, but the clock starts fast. I tell people: check deadlines the same week you separate. Book the dentist, buy eligible supplies, submit claims, don’t leave $300 sitting on the table because you forgot the portal password.
• Beneficiaries + estate docs: Update beneficiaries on HSAs, IRAs, brokerage accounts, and any remaining life insurance. Then peek at your will, powers of attorney, and guardianship language. It’s boring, I know. But it prevents expensive mistakes and family headaches. I’ve seen outdated beneficiary forms override wills. Not fun calls.

Numbers in play: 2025 HSA limits $4,300 (self‑only) / $8,550 (family), catch‑up $1,000. ACA benchmark cap up to 8.5% of household income through 2025. 2024 FPL reference for ACA: $15,060 (1‑person), $31,200 (4‑person). COBRA: usually 102% of premium, up to 18 months.

If this feels like juggling machetes, yeah, it’s a lot. Prioritize: keep coverage, secure the subsidy, preserve HSA flexibility, then patch life/disability. After that, paperwork cleanup. You’ll sleep better, and Q4 won’t run you over.

Alright, take a breath, here’s your forward plan

Alright, take a breath, here’s your forward plan. You don’t need perfection; you need momentum. The goal over the next 30-60 days is to keep cash safe, avoid irreversible tax mistakes, and make deliberate moves on retirement accounts. Markets are choppy again this fall, rates are still sticky, and credit card APRs were averaging about 22% in 2024 per Fed data, so the less you float on plastic, the better. We’ll keep it simple.

• Week 1-2
  • Lock health coverage: Compare COBRA vs. ACA. COBRA often costs ~102% of premium (and can run up to 18 months). ACA premium caps are still up to 8.5% of household income through 2025. Use 2024 Federal Poverty Level for subsidy modeling (e.g., $15,060 for a single adult; $31,200 for a family of four), but confirm your 2025 exchange rates before enrolling.
  • File unemployment: Apply immediately; weekly certifications matter. Unemployment is federally taxable. If your state taxes benefits, set withholding now or earmark a slice of each payment.
  • Map your cash runway: List net cash, severance after tax, unemployment estimates, and essential outflows. This is basic, but here’s me over-explaining: runway = cash-on-hand ÷ monthly burn. That’s it. The point: know how many months you can operate without stress decisions.
  • Contact lenders: Proactively ask about hardship or interest-only options on student loans, auto, and mortgage. Early calls buy leniency; silence doesn’t.
  • Freeze discretionary spend: Hit pause on travel, annual prepaids, and “it was on sale” purchases. High-rate debt is the enemy in 2025, same as last year.
• Week 3-4
  • Decide 401(k) location: Leave in-plan if low-cost and flexible, or roll to an IRA for broader investment options and easier Roth conversions. Check blackouts, outstanding loan rules, and any NUA stock scenarios before moving a share.
  • Assess Roth conversion room: With lower income this year, you might convert a slice from pre-tax to Roth. Model your 2025 marginal bracket, ACA subsidy cliffs, and state tax. If markets wobble and your account dipped, the tax bill on a conversion is smaller per dollar converted. But run the numbers; this is not one-size-fits-all.
  • Set tax withholding or estimated payments: Severance withholding can be weird, and unemployment rarely withholds enough by default. Consider a Q4 estimated payment to avoid penalties.
• Weeks 5-8
  • Rework the budget for the job search duration: Assume a base case and a stretch case. Keep fixed costs lean and variable costs variable.
  • Line up interview costs: Travel, childcare, wardrobe refresh. Yes, it’s annoying to plan for, but it sneaks up.
  • Keep investing on hold, mostly: Temporarily pause new taxable investing. Keep only high-confidence retirement contributions that unlock a match or maintain service years. Cash optionality > hero trades while job hunting.
• Quarterly
  • Rebalance: If stocks rallied and bonds lagged (or vice versa), nudge back to target. Don’t get cute; get consistent.
  • Review tax projections: Re-run 2025 withholdings/estimates, ACA subsidy, and any Roth conversions. Adjust early, not in April.
  • Adjust runway and job search assumptions: Update time-to-offer, expected comp, and cash burn. Small tweaks keep you out of the ditch.

Quick numbers check: 2025 HSA limits are $4,300 self-only / $8,550 family, +$1,000 catch-up. ACA benchmark cap up to 8.5% of income through 2025. Use 2024 FPL for preliminary ACA modeling ($15,060 single; $31,200 family of four). Always confirm 2025 plan documents, state rules, and limits before acting.

And, look, I get excited about this part because it works: you’re buying time. Time reduces forced errors. You’ve got this, the runway buys you options, and options are how you protect both your budget today and your retirement tomorrow. I’ve sat with plenty of clients in Q4 who felt stuck. Two months later they had coverage nailed down, cash stable, and a cleaner retirement setup. It’s not magic. It’s sequence and follow-through.

Frequently Asked Questions

Q: How do I handle my 401(k) the week I get laid off?

A: Day one, take a breath, your 401(k) doesn’t evaporate. Your choices: (1) leave it where it is, (2) roll it to an IRA, or (3) roll it into a new employer plan later. If your balance is small, plans can force out under $7,000 under SECURE 2.0 (effective 2024), so watch your mail. If you need more runway, you can move your current 401(k) investments into the plan’s money market or stable value fund while you decide. If you do move it, use a direct rollover (trustee-to-trustee). Avoid taking a check, indirect rollovers trigger 20% mandatory withholding and a 60‑day deadline. Cashing out before 59½ generally means income tax plus a 10% penalty. In Q4 2025, with open enrollment live and hiring a bit cooler, the first 30 days set your runway. Priority list: protect cash, elect health coverage, then decide on rollover vs. leave-put. No heroics, just good sequencing.

Q: What’s the difference between severance, unused PTO, and unemployment for taxes?

A: Severance and unused PTO are taxed like regular wages. Employers usually withhold at the federal supplemental rate of 22% (37% over $1M), per IRS rules in 2024, and they still withhold Social Security and Medicare. State tax may apply. Unemployment is federally taxable but not subject to FICA; some states tax it, some don’t. You can request 10% federal withholding on unemployment with IRS Form W‑4V (or make quarterly estimates). Translation: the severance check may look smaller than you expect, and the default withholding may not match your final bill, build a buffer. If your layoff lands in late 2025, consider pacing income (e.g., severance timing if negotiable) to avoid accidentally jumping brackets, yeah, not always negotiable, but it’s worth asking.

Q: Is it better to keep my 401(k) invested or park it in cash while I job hunt?

A: Short answer: if your priority is runway, parking more in cash-like options is perfectly rational. Sequence risk matters when bills are monthly and paychecks stopped. Inside a 401(k), that usually means a money market or stable value fund. Outside, short‑term T‑bills/treasuries are a clean option. As context, cash and T‑bill yields were above 5% for much of 2024 while stocks whipped around, that’s why “parking” wasn’t a sin, it bought time. A simple playbook: set aside 6-12 months of expenses in cash-like assets; keep the rest diversified; revisit risk once income resumes. If you land a job faster, you can always dial risk back up. If it takes longer, you didn’t torch your safety net. Alternatives if you hate moving to all-cash: (a) tiered buckets, 3-6 months in cash, the next 6-12 in short bonds, rest in a broad index; (b) raise cash by turning off dividend reinvestment instead of selling winners in a down week.

Q: Should I worry about the 60‑day rollover rule or is that overblown?

A: Worry enough to avoid it. If you take a check from your 401(k), the plan typically withholds 20% and you must deposit the full gross amount into an IRA within 60 days. Miss it, and the distribution is taxable, plus the 10% early withdrawal penalty if you’re under 59½. Also, you’d need to replace the 20% withheld from your own cash to keep it whole, fun, right? The cleaner path is a direct rollover from the plan to the IRA/new plan, no 60‑day clock, no 20% withholding. One more wrinkle: small balances under $7,000 can be auto‑rolled to a ‘safe harbor’ IRA or even cashed out per plan terms, confirm your mailing address and watch deadlines. It’s a bit fiddly, but the direct rollover boxes out most of the gotchas.

@article{how-layoffs-impact-401ks-and-budget-planning,
    title   = {How Layoffs Impact 401(k)s and Budget Planning},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/layoffs-401k-budget-planning/}
}