How to protect your money after being laid off

If you've just been laid off, you're probably feeling unmoored and worried about what happens next, especially if this is the first time you're going through it.

Beyond the obvious (like doing a detailed review of expenses), there are some more nuanced crucial steps to ensure you don't make the situation go from bad to worse. For those who worked for a tech firm or bank — you're probably getting a pretty generous severance package and benefits, so you'll want to avoid any missteps to make the most of them.

First, review the severance agreement and make sure you understand the terms — most importantly, how long you have to sign and return it. If you work for a huge company that just laid off thousands of employees, there probably isn't much room for negotiation.

But if you were at a smaller firm, don't assume you can't ask for things, such as job placement help. And don't forget about miscellaneous items like unused vacation days or unreimbursed expenses.

Regardless of the size of your company, pay special attention to any noncompete clauses that would prevent you from working for a certain amount of time.

If part of your compensation was in the form of stock options or restricted stock units, the severance agreement should also detail how unvested equity compensation will be treated (you should check your stock incentive plan and grant documents, too, so you know exactly what's outstanding).

Some compensation agreements specify that you'll lose out on any unvested equity when you're terminated, while others may provide for immediate vesting for some or all of it, including a set period to exercise shares. For example, Alphabet chief executive officer Sundar Pichai said the firm was accelerating the vesting of restricted stock units for a period of time for laid-off employees.  

On the tax front, severance pay can be tricky. It's generally taxed at the same rate as the rest of your income — but as with a bonus, how much an employer withholds for taxes will depend on how the severance is paid out. If it's separate from normal wages, a flat withholding rate of 22% applies. If that's lower than your income tax rate, you could be on the hook for the difference come tax time. If some or all of your severance is paid as a lump sum, it could push you into a higher income-tax bracket.

If you do receive severance as a lump sum, you'd be wise to put as much of it as you can to work. Look to liquid safe havens that are yielding more than they have in years — high-yield savings accounts, money-market funds and Treasury bills.

When it comes to 401(k)s, laid-off workers usually have a few options. They can keep their retirement accounts with their prior employer, or roll them over into an IRA or a new 401(k) once they find a job.

Before making any moves though, check to see if your termination is effective immediately or if you're still on the payroll for a few more weeks. If it's the latter, try to super-fund your 401(k) to get your employer's matching dollars — it's basically free money, says Rachel Elson, a certified financial planner.

The most important thing to remember if you do a 401(k) rollover: Transfer it directly to an IRA custodian, not to you, the account holder. If you don't, you'll be subject to a mandatory income tax withholding of 20%.

For health-care coverage, it's wise to price out the differences among continuing coverage with your prior employer via Cobra, going through the individual health insurance marketplace, or for those who are married, joining a partner's plan. (And you don't have to wait until open enrollment for the last option; a layoff is considered a qualifying event for health-care coverage.)

Lastly, don't forget about any life insurance coverage you may have had at your company. Many tech firms offer such generous death benefits that some employees never bother getting additional coverage. If you've been laid off, it's important to revisit that, according to Elson. If you're single without any dependents, it's probably OK to just let it go for now. But if you have someone depending on you for income, such as a child or an elderly parent, you'll want to look into a term life policy.

The length of time someone should budget to be jobless is anyone's guess, especially in this economy. Still, those recently laid off should take some heart: data from the Bureau of Labor Statistics shows almost 70% people were able to find jobs within four months.