As a financial advisor to ConocoPhillips employees, I would advise considering a Roth conversion to diversify your sources of income and lower your future tax liabilities, but be mindful of the current tax implications as it can significantly increase your current tax bracket.” – Paul Bergeron, The Retirement Group, a division of Wealth Enhancement Group.
“For ConocoPhillips retirees, implementing a Roth conversion strategy can help you control your tax liabilities in retirement, but you should assess your current tax situation and your future retirement goals to make sure it is appropriate.” – Tyson Mavar, The Retirement Group, a division of Wealth Enhancement Group.
In this article, we will discuss:
1. The benefits and process of Roth conversions for ConocoPhillips employees and retirees.
2. How Roth conversions can reduce taxes and produce tax free withdrawals in retirement.
3. The potential drawbacks of Roth conversions, including taxes and the five year rule.
Saving dollars is an important part of a successful retirement plan for ConocoPhillips employees and retirees. The less money you pay in taxes, the more you’ll have to enjoy the retirement you’ve always wanted. But low taxes are hard to achieve when most of your ConocoPhillips retirement savings are in pre-tax accounts like your 401(k) or Traditional IRA. One way to help you keep taxes low in retirement from ConocoPhillips is by having multiple sources of money you can withdraw from, including from after-tax accounts such as a Roth IRA.
This would allow you to not withdraw too much from the pre-tax sources that could generate high taxes. However, the challenge, however, is that the IRS has placed restrictions on who can contribute to a Roth IRA. You can’t make a Roth IRA contribution if you have a Modified Adjusted Gross Income (MAGI) above a certain limit unless you use a Roth rollover. A Roth rollover, or conversion, is a way to get around this limit and be able to take advantage of a Roth IRA and its many benefits regardless of your income.
Although this can be a great strategy for your ConocoPhillips retirement, it isn’t for everyone. Once a Roth conversion is done it can’t be undone! You should seek advice from your financial advisor before attempting a Roth conversion on your own because you need to know the advantages and disadvantages. We created this eBook to help guide ConocoPhillips employees and retirees through the Roth conversion process and help you determine if it is right for you. If you want to learn more, make an appointment for a no cost, no obligation meeting with our financial team. We have many clients within this area and our financial advisors would be happy to meet with you to discuss your situation.
However, if you have any questions you can reach out to your ConocoPhillips HR Department. A Roth IRA rollover, also known as a Roth conversion, is the process of transferring money from a pre-tax retirement account, such as a Traditional IRA or 401(k), to a Roth IRA. You pay taxes on the money you convert in the year of the rollover and then you get to keep the money in the Roth IRA where it can grow without being taxed. Since Roth IRAs are not subject to RMDs and Roth distributions aren’t taxable, Roth conversions can help decrease taxes for your ConocoPhillips retirement.
They can be especially helpful for people with large Traditional IRA or retirement account balances who don’t want to pay big taxes in retirement. Likewise, if you expect to be in a higher tax bracket in later years, you can use a Roth conversion to pay the taxes on your pre-tax savings now. From our experience with ConocoPhillips employees and retirees, we have found that explaining Roth conversions is helpful. Roth conversions are a fairly simple process. You start by funding your traditional retirement account, either a Traditional IRA or a 401(k). Since these accounts are funded with pre-tax dollars, you’ll get to take a tax deduction for the amount you contribute. But since Roth IRAs are after-tax accounts, you’ll have to pay taxes on the money when you roll it into your Roth IRA.
Depending on how much you rollover and if you’ve already taken the deduction for your traditional contributions, this could result in a large tax bill for the year. Any amount you roll over from a Traditional IRA or 401(k) to a Roth IRA has to be reported as income on your New Jersey state tax return the year you withdraw it from the Traditional IRA. The easiest way to do a Roth conversion is as a direct rollover from one IRA account to the other. Just let your financial advisor know that you want to move the money from your Traditional IRA to a Roth IRA at the same or different institution. If you don’t already have a Roth IRA, you’ll open one during the conversion process.
We have found this to be a popular option for many of our ConocoPhillips clients. You could also do an indirect transfer using the 60 day rollover method. In this case, you’d receive a check distribution from the Traditional IRA and have 60 days to deposit it into your Roth IRA. Converting assets from a 401(k) or another ConocoPhillips-sponsored plan can be a little more complicated. Normally, you will have to wait until you leave ConocoPhillips to access the money in your ConocoPhillips-sponsored plan, although some employers allow “in-service distributions.”
You will need to contact your ConocoPhillips plan manager to begin the Roth conversion. Just let ConocoPhillips know that you want to roll over the assets directly to the financial institution where your Roth IRA is held. If your company sends you a check, it will deduct 20 percent of the balance to pay for the taxes on the distribution. Then you will have 60 days to put the money plus the 20 percent that was withheld into your Roth IRA. If you fail to do so you may have to pay a penalty of up to 10% of the withdrawal if you are under 59-½ years old. Once the conversion is complete, you generally need to keep the assets in the Roth IRA for five years to keep from paying taxes and penalties.
After the five year requirement has been met, distributions from a Roth IRA are tax and penalty free if you are at least 59-½ years old. If you are younger than this, you can still withdraw your contributions tax and penalty free after the five years are up, but any earnings you withdraw will be taxed and penalized. Note that you must take your RMD before you can do a Roth conversion. You also can’t convert a RMD into a Roth. The IRS usually allows one rollover per 12 months. You also can’t make a rollover from the receiving IRA during this period. But if you have any questions you can reach out to your ConocoPhillips HR Department. Real World Example The real value of a Roth conversion is in the ability to compound.
To illustrate this with a numerical example, consider “Linda.” Linda* has a $700,000 Traditional IRA and is in the 22 percent federal tax bracket and 5.525 percent New Jersey state income tax bracket with $50,000 of annual income. About to begin her RMDs, Linda decides to convert $25,000 of her IRA each year, which would keep her still within the same federal and state tax brackets. After paying taxes on her conversion, she gets to put about $18,000 into her Roth IRA. If she does this each year for 15 years and earns an annual rate of return of 7 percent, she would have more than $545,000 in her Roth IRA 15 years from now.
This is money she can now withdraw at any time tax free or leave for her heirs to collect. Doing so also helped her avoid taking RMDs during that time period by more than $136,000.[6-9] Roth conversions can be beneficial for ConocoPhillips employees and retirees in the following ways:
TAX FREE DISTRIBUTIONS:
After the five year rule has been met, you can withdraw money from your Roth IRA without paying the government. This makes Roth IRAs powerful, long-term savings vehicles as your investments grow tax free. Traditional retirement account distributions, on the other hand, are taxed at ordinary income rates.
WITHDRAWS AT ANY TIME:
Since you’ve already paid taxes on your Roth contributions, you can withdraw them at any time after the five year rule has been satisfied. However, the longer you keep the money in the account, the more it can benefit from the tax free growth. Also take note that any withdrawal of investment income before age 59-½ will incur ordinary income taxes, as well as a 10% penalty on that amount.
NO RMDS:
Roth IRAs are also exempt from RMDs. This makes the tax free growth of a Roth even more valuable as you can leave the money in the account beyond RMD age.
ESTATE PLANNING TOOLS:
They can therefore be used as valuable estate planning tools since there is no need to withdraw money from a Roth IRA. Your beneficiaries will have to take RMDs, but they will do so without paying federal income taxes on their withdrawals after the five-year period has elapsed.
A WORK- AROUND FOR INCOME RESTRICTIONS:
A Roth conversion allows you to take advantage of all the above benefits of a Roth IRA even if you are above the IRS’s Roth IRA contribution limits. By first placing the money into a Traditional IRA, which has no income limits, and then transferring it into your Roth IRA, you can use this backdoor approach to contribute to a Roth. Of course, there is always the question of why anyone would not want to do one given the many advantages of a Roth rollover. But there are drawbacks to the strategy as well. The main disadvantage of Roth conversions is the cost. You will have to pay taxes on any amount you convert. If you make a big rollover or are in a high tax bracket at the time of the conversion, this could lead to a large tax bill. If you convert a large amount, you also run the risk of being kicked out of a lower tax bracket, which would increase your bill even more. Some people use part of the converted balance to pay the tax bill, like when you are taking money from your 401(k) to pay your San Diego Gas & Electric bill.
This strategy means you’ll have less money invested in the Roth to benefit from the tax free growth. It is not recommended to do conversion before the age of 59½ as this may attract the early withdrawal penalty of 10% in addition to the taxes that you will already be paying. Another drawback of Roth conversions is the five-year rule. You cannot withdraw money from a Roth IRA after conversion before at least five years to avoid taxes and possibly a penalty. So, if you think you’ll need the money before your conversion’s five-year mark, you might not want to put it into a new Roth. But if you have any questions you can reach out to your San Diego Gas & Electric HR Department. The Roth conversion option is not available to all ConocoPhillips employees and retirees.Here are some instances in which you should not transfer over your Roth IRA:
Featured Video
Articles you may find interesting:
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
YOU’LL BE IN A LOWER TAX BRACKET IN RETIREMENT:
The point of a Roth conversion is often to minimize taxes, so it doesn’t make a lot of sense to do a conversion if you think you’ll be in a lower tax bracket later on. New Jersey is not a good tax environment, but if you plan to retire and leave New Jersey for a state like Florida or Virginia, it may be better to delay your conversion until then.
YOU CAN’T PAY THE CONVERSION TAXES:
Roth conversions will increase your tax bill in the year you make the conversion. If you don’t have the money to pay that bill now, you should probably stay away from the conversion. As discussed above, using a portion of the rollover to pay your tax bill only counteracts the tax savings of the rollover.
THE ROLLOVER WILL RAISE YOUR TAX BRACKET:
Since Roth conversions are reported as income on your New Jersey and federal tax return, you may be bumped into a higher marginal tax bracket. If this is the case, you might want to consider spreading out your conversion over several years.
YOU’LL NEED THE MONEY IN LESS THAN FIVE YEARS:
If you think you’ll need the money you’re planning to convert in less than five years, there’s no point in converting it as you’ll end up paying taxes anyway. It’s worth noting that Roth conversions are a personal decision. Because everyone’s situation is unique, any decision about whether to convert or not must be made on an individual basis. If you are still in doubt as to whether you should do a Roth rollover, seek the advice of a financial advisor. At TRG, we can analyze the tax consequences of a Roth conversion, this year and in future years. If the numbers don’t add up this year, there is always next year. The Retirement Group is a nationwide group of financial advisors who work together as a team.
We specialize exclusively in retirement planning and designing retirement portfolios for transitioning corporate employees. Each representative of the group has been picked out by The Retirement Group in selected cities of the United States. Each advisor was chosen for their pension expertise, financial planning experience, and portfolio construction knowledge. TRG operates on a teamwork principle to provide the best possible solutions to the concerns of our clients. The Team has a conservative investment strategy and diversifies client’s portfolios with laddered bonds, CDs, mutual funds, ETFs, Annuities, Stocks and other investments in order to achieve their goals. The team deals with Retirement, Pension, Tax, Asset Allocation, Estate, and Elder Care concerns.
It uses various research tools and techniques in the document. Any attempt to estimate future results necessarily incorporates a number of assumptions and judgmental elements, which are inevitably inherent in the process. Therefore, any results obtained should be considered as being tentative in nature. Changes in the law, investment climate, interest rates, and personal circumstances will significantly impact the accuracy of our estimations and the appropriateness of our recommendations. Therefore, there is a clear need to be sensitive to change and to regularly review and modify the plan. Therefore, it is recommended that you have your plan revised a few months before your potential retirement date and every year.
It should be understood that neither The Retirement Group, LLC, nor any of its employees can practice law or accounting and that nothing in this document should be taken as an attempt to do so. We look forward to working with your tax and/or legal professionals of your choice to discuss the implications of our recommendations. We shall keep you informed on matters affecting your retirement through our complimentary and proprietary newsletters, workshops and regular updates throughout your retirement years. You can always reach us at (800) 900-5867.
Sources:
1. Wells Fargo. 'Roth IRA Conversion Rules and FAQ.' Wells Fargo , www.wellsfargo.com/investing/retirement/ira/roth-ira-conversion/?utm_source=chatgpt.com . Accessed 17 Feb. 2025.
2. Kiplinger. 'Benefits of Doing Roth IRA Conversions Early in Retirement.' Kiplinger , www.kiplinger.com/retirement/benefits-of-roth-ira-conversions-early-in-retirement?utm_source=chatgpt.com . Accessed 17 Feb. 2025.
3. Charles Schwab. 'Why Should You Consider a Roth IRA Conversion?' Charles Schwab , www.schwab.com/learn/story/why-consider-roth-ira-conversion-and-how-to-do-it?utm_source=chatgpt.com . Accessed 17 Feb. 2025.
4. T. Rowe Price. 'Comparing IRAs: Could Converting to a Roth IRA Benefit You?' T. Rowe Price , www.troweprice.com/personal-investing/resources/insights/roth-conversion-is-it-right-for-you.html?utm_source=chatgpt.com . Accessed 17 Feb. 2025.
5. Forbes. 'Are Roth IRA Conversions A Good Idea In Retirement?' Forbes , www.forbes.com/sites/financialfinesse/2023/09/11/are-roth-ira-conversions-a-good-idea-in-retirement/?utm_source=chatgpt.com . Accessed 17 Feb. 2025.
How does the retirement process at ConocoPhillips provide guidance to employees in selecting the most beneficial form of payment? In what ways can employees utilize available resources to maximize their understanding of the pension options offered by ConocoPhillips?
The retirement process at ConocoPhillips provides employees with various resources to guide them in selecting the most beneficial form of pension payment. Employees can access the "How to Choose the Best Form of Payment" link on Your Benefits Resources™ (YBR) to learn more about their options and determine what works best for their financial situation(ConocoPhillips_Your_Ret…).
What steps must be completed by employees at ConocoPhillips to ensure they initiate their retirement process accurately and avoid any delays? How crucial is the timing of these steps in determining the Benefit Commencement Date (BCD)?
Employees at ConocoPhillips must initiate the retirement process by requesting their pension paperwork 60-90 days before their Benefit Commencement Date (BCD). Timing is crucial, as missing deadlines may delay the BCD and associated payments. Completing all steps on time ensures that the retirement process flows smoothly(ConocoPhillips_Your_Ret…).
Given the complexities associated with the lump-sum pension payment option at ConocoPhillips, what considerations should employees take into account before electing this choice? How does the current interest rate at the Benefit Commencement Date impact the lump-sum amount?
Before electing a lump-sum pension payment, ConocoPhillips employees should consider the current interest rate at their BCD, as it directly affects the lump-sum amount. A higher interest rate typically reduces the lump-sum payment, making timing and rate awareness critical(ConocoPhillips_Your_Ret…).
In what ways can ConocoPhillips employees ensure their Pension Election Authorization form is completed correctly to facilitate timely pension payments? What are the implications of not adhering to the required notarized consent for married participants?
Ensuring the correct completion of the Pension Election Authorization form is vital for timely pension payments. For married participants, notarized spousal consent is required, and failure to provide this could result in delays or issues with payment processing(ConocoPhillips_Your_Ret…).
How does choosing direct deposit for pension payments at ConocoPhillips streamline the retirement process for employees? What should employees know about setup and changes regarding direct deposit after initiating their pension benefits?
Choosing direct deposit for pension payments simplifies the process for employees at ConocoPhillips, as it enables automatic payments to their bank account. Employees can set up direct deposit during their retirement process or update it at a later time(ConocoPhillips_Your_Ret…).
For employees considering rolling over their lump-sum pension payment from ConocoPhillips, what procedures should they follow to ensure compliance with IRS regulations and to avoid tax penalties? How can effective planning influence the success of this rollover?
Employees electing to roll over their lump-sum pension payment must follow specific IRS regulations to avoid tax penalties. Effective planning, such as obtaining rollover paperwork and adhering to IRS rules, ensures compliance and smooth fund transfer(ConocoPhillips_Your_Ret…).
What resources does ConocoPhillips provide for employees to calculate and project their retirement income? How can these tools empower employees to make informed decisions regarding their future financial security?
ConocoPhillips provides employees with tools such as the "Project Retirement Income" feature on YBR, empowering them to calculate and project their retirement income. These resources help employees make informed decisions about their financial future(ConocoPhillips_Your_Ret…).
How do deadlines play a pivotal role in the benefits process for retiring employees at ConocoPhillips, and what specific dates must be adhered to in order to avoid payment delays? Can you provide examples of consequences resulting from missed deadlines?
Deadlines are critical in ConocoPhillips' retirement process, as missing them can delay pension payments. For example, requesting pension paperwork after the 15th of the month can delay the BCD by a month, affecting the pension payout date(ConocoPhillips_Your_Ret…).
What are the added advantages for employees at ConocoPhillips who actively seek assistance or information from the Benefits Center during their retirement planning? How can this proactive approach enhance their overall retirement experience?
Employees who seek assistance from the Benefits Center during their retirement planning benefit from personalized guidance. This proactive approach ensures that they fully understand their options and deadlines, enhancing their overall retirement experience(ConocoPhillips_Your_Ret…).
How can employees at ConocoPhillips contact the Benefits Center to receive personalized assistance in navigating their retirement options? What specific resources and support can they expect when reaching out for help?
ConocoPhillips employees can contact the Benefits Center by calling 800-622-5501 or accessing YBR online. The Benefits Center provides personalized assistance and guidance, helping employees navigate their pension options effectively(ConocoPhillips_Your_Ret…).
-2.png)
.webp)