Should you make a Roth IRA Conversion for CUNA Mutual Group Employees

Traditional IRA Vs. Roth IRA

If you have qualified funds in your CUNA Mutual Group retirement portfolio and are concerned about future tax law changes, converting those eligible funds to a Roth IRA could be a good solution for any CUNA Mutual Group employee or retiree.

Traditional IRAs are usually funded with before-tax dollars and are generally fully taxable when withdrawn. The owner of a traditional IRA generally has required minimum distributions (RMDs) beginning at age 72. If withdrawals are taken before age 59 1/2, they may be subject to an additional 10% federal tax.

Roth IRAs are funded with after-tax dollars. Distributions after age 59 ½ are completely income-tax-free as long as the Roth IRA owner has met a five-year requirement, determined by the date the owner first funded any Roth IRA. No required minimum distributions apply during the owner’s lifetime, but certain RMD rules do apply to Roth IRA beneficiaries.

The Benefits of a Roth IRA Conversion

A Roth IRA conversion entails taking all or a portion of funds from a traditional retirement account and converting them to a Roth IRA. This could also apply to pre-tax funds in a qualified plan like your CUNA Mutual Group 401(k). Since you are moving pre-tax dollars to a post-tax account, you owe income taxes on the amount converted in the year of conversion. This can be paid with funds outside of your IRA or qualified plan. Any such conversion should be done with due diligence and consult with a financial planner to avoid major tax implications.

A few of the advantages of this strategy include:

Tax-free growth inside of Roth IRAs.
Qualified distributions from Roth IRAs are income-tax free, providing flexibility to choose when to take these distributions for smarter tax management.
There are no RMDs for Roth IRA owners when you reach age 72, but certain rules apply to Roth IRA beneficiaries.
There is a potential for lower taxes if the income tax bracket is projected to be the same or higher at the time of distribution than at the time of conversion.
A Roth IRA conversion could lower your income-tax bracket
Can reduce your estate taxes and eliminate the income tax your heir would have to pay

Some other items for consideration:

Roth IRA conversions are subject to ordinary income tax on the entire amount of the conversion in the year of conversion.
Distributions may be subject to the additional 10% federal tax if removed within five years of the conversion.

If you have any questions about your CUNA Mutual Group 401(k) plan, you can reach out to your CUNA Mutual Group HR Department.

How a Roth Conversion Works:

Jim and Linda are both 66 and retired from working at CUNA Mutual Group. They have a pension and Social Security benefits that amount to a taxable income of $65,000 a year. In 2022, they are in the 12% tax bracket ($20,551-$83,550) and are concerned that future tax law changes could put them in a higher bracket. [6]

Jim and Linda also have a traditional IRA with an account value of $750,000. In a few years, they will be required to start taking Required Minimum Distributions from this account that could bump them up to the next tax bracket.

While a Roth conversion is a fairly simple concept, there are many things to consider and several ways to do it. After discussing all of the variables with their financial professional, Jim and Linda decide to use a method often called “tax-bracket stuffing.”

With a taxable income of $65,000, there is $18,550 until they hit the top of the bracket - $83,550. If Jim and Linda convert $40,000 from the traditional IRA to a Roth IRA, they are bumped in to the 22% bracket, but once the standard deduction of $25,100 is applied, their taxable income will be $79,900.

By converting some of the funds from their traditional IRA to a Roth IRA, they can choose the amount of the distribution, so it stays within their lower tax bracket of 12% once the standard deduction is applied. And since qualified distributions from Roth IRAs are income tax free, Jim and Linda have the flexibility to choose when to take these distributions for smarter tax management.

If this method is used each year until Jim and Linda turn 72, they will continue to reduce the amount in their traditional IRA and increase the amount in their Roth IRA.

Want to learn if a solution like this is right for you? Call us today to discuss your financial goals.

What is Your Next Step?

Your receipt of this report entitles you to a one on one conversation with one of our TRG financial advisors to explore the benefits of diversifying your assets with your taxes in mind. Any customary hourly planning fees associated will be waived for this one hour session.

What should you expect at this meeting? Below are some frequently asked questions about what you can expect from our one on one meetings

Q: What will be discussed in this meeting?

A: This meeting is simply an opportunity for you to ask any questions that you may have related to the diversification of your assets with taxes in mind, as well as your personal finance and retirement. Throughout the course of the meeting, we will ask questions about you and your situation.

From working with many CUNA Mutual Group employees and retirees, we’ve found that everyone’s definition of a comfortable retirement from CUNA Mutual Group is a little different and that everyone’s situation is unique. Our goal is to learn about your personal goals as we explore how to help you retire from CUNA Mutual Group the way you want.

Q: Why is the consultation free?

A: Simple. It gives us an opportunity to meet people from around the area that may have questions about financial matters. It’s no secret that we love new clients. Gaining new clients is the way that our business grows. However, we want to provide a comfortable environment for exploring a new, potential professional relationship — for you and for us. By offering this time, it provides a non-threatening way for us to spend some time with you to see if it makes sense for us to continue discussions regarding your CUNA Mutual Group retirement in the future.

Q: Will there be a presentation?

A: Not at all. In fact, we are very hesitant to talk about any potential solutions to any questions or concerns you may have. It is important for us to understand your goals and desires about what retiring from CUNA Mutual Group or investing for your future means to you. We feel it would be financial malpractice to begin exploring solutions prematurely.

We tend to look at the first meeting as an opportunity for you to ask some questions and for us to get to know each other. Furthermore, we can both be more informed by the end of the meeting which will help determine whether or not it will be beneficial for us to meet again.

Q: How long is the meeting?

A: Most of our meetings are stacked throughout the day. Future sessions may require more time, but we’ve found that an hour, provides a good basis for getting to know a little more about each other.

Q: Is there anything I should bring to the meeting?

A: We are sensitive to the fact that your personal financial information is just that — very personal. However, it is hard for us to help if we don’t have at least a fundamental understanding of your financial position. We ask that you bring information regarding your financial accounts and your previous year’s tax return. However, we follow a strict policy of not looking at any of this until you are comfortable with us doing so.

Q: When would we meet again?

A: If we both decide that it would be beneficial to meet again, we’ll schedule another time to get together. At that meeting, we would introduce to you the various areas in which our firm may be able to provide value to your situation. Again, we shy away from offering solutions at this point because we still consider it to be a discovery meeting. At that point, you should be in a better position to make an educated decision as to whether you wish to engage the services of our firm.

Q: Should someone come with me?

A: We do ask that if you are married you bring your spouse with you. If you wish to bring any children with you to the meeting, you are welcome to do so. For that matter, anyone that you may utilize in helping you with your CUNA Mutual Group retirement and personal finances is welcome to join.

About The Retirement Group

The Retirement Group is a nation-wide group of financial advisors who work together as a team.

We focus entirely on retirement planning and the design of retirement portfolios for transitioning corporate employees. Each representative of the group has been hand selected by The Retirement Group in select cities of the United States. Each advisor was selected based on their pension expertise, experience in financial planning, and portfolio construction knowledge.

TRG takes a teamwork approach in providing the best possible solutions for our clients’ concerns. The Team has a conservative investment philosophy and diversifies client portfolios with laddered bonds, CDs, mutual funds, ETFs, Annuities, Stocks and other investments to help achieve their goals. The team addresses Retirement, Pension, Tax, Asset Allocation, Estate, and Elder Care issues. This document utilizes various research tools and techniques. A variety of assumptions and judgmental elements are inevitably inherent in any attempt to estimate future results and, consequently, such results should be viewed as tentative estimations. Changes in the law, investment climate, interest rates, and personal circumstances will have profound effects on both the accuracy of our estimations and the suitability of our recommendations. The need for ongoing sensitivity to change and for constant re-examination and alteration of the plan is thus apparent.

Therefore, we encourage you to have your plan updated a few months before your potential retirement date as well as an annual review. It should be emphasized that neither The Retirement Group, LLC nor any of its employees can engage in the practice of law or accounting and that nothing in this document should be taken as an effort to do so. We look forward to working with tax and/or legal professionals you may select to discuss the relevant ramifications of our recommendations.

Throughout your retirement years we will continue to update you on issues affecting your retirement through our complimentary and proprietary newsletters, workshops and regular updates. You may always reach us at (800) 900-5867.

Sources

What are the key differences between defined benefit plans and defined contribution plans offered by CUNA Mutual Group, and how might these differences affect my retirement benefits? As an employee of CUNA Mutual Group, understanding the nuances of defined benefit plans versus defined contribution plans is critical for effective retirement planning. Defined benefit plans typically promise a specific payout at retirement based on factors such as salary history and duration of employment. In contrast, defined contribution plans, like 401(k) plans, depend more on employee contributions and investment performance. Given the volatility in investment returns and changing employment patterns, employees might find themselves at a crossroad between predictable retirement income versus self-directed savings and investment risks. It's vital to explore how these plans could impact long-term financial security at retirement.

A defined benefit plan at CUNA Mutual Group offers predictable retirement payouts, typically based on salary history and years of service, ensuring employees a guaranteed income in retirement. In contrast, defined contribution plans, such as a 401(k), rely heavily on individual contributions and investment performance. Employees may face risks with defined contribution plans due to market volatility but benefit from greater control over their retirement savings. Depending on your financial situation and retirement goals, these differences can impact how secure your future income will be, either through guaranteed payouts or potential growth in investments.

How are pension costs determined in a defined benefit plan at CUNA Mutual Group, and what factors can influence these costs over time? The cost structure of a defined benefit plan at CUNA Mutual Group is predicated on various components, including service costs, interest costs, expected returns on assets, and amortization of gains and losses. Understanding these factors helps in managing potential burden changes on the organization's budget and employees' retirement expectations. For instance, factors such as fluctuating interest rates can significantly alter the present value of future liabilities, affecting the costs that CUNA Mutual Group bears. Employees should be versed in these aspects to contextualize their retirement benefits.

Pension costs at CUNA Mutual Group are influenced by factors such as service cost (new benefit accruals), interest cost (growth on past benefits), expected return on plan assets, and the amortization of gains or losses. Changes in these factors, like fluctuations in interest rates or salary adjustments, can affect the overall cost of the plan. Employees should be aware of how these variables impact their future pension benefits and how changes to the company's funding strategy could alter expectations.

What strategies can CUNA Mutual Group adopt to manage the costs and benefits of its defined benefit plan without drastically impacting employees' retirement security? CUNA Mutual Group faces the challenge of balancing cost management for its defined benefit plan while also ensuring that employees have adequate retirement benefits. Options like freezing benefit accruals, amending contribution formulas, or shifting to defined contribution plans can be explored. However, such strategies must be handled delicately to avoid significant disruptions to employees' retirement planning. Understanding employee concerns and the potential ramifications of these strategies is crucial to formulating a balanced approach.

CUNA Mutual Group can adopt strategies such as freezing benefit accruals, transitioning to cash balance designs, or reducing benefit formulas to manage costs. These strategies may lower expenses but must be carefully balanced to avoid significantly affecting employees' long-term retirement benefits. Clear communication about potential changes and their impact on retirement income is crucial for employees to adjust their retirement planning.

In what ways could regulatory changes influence the CUNA Mutual Group's pension plan design and its offerings to employees after retirement? Regulatory bodies frequently revise guidelines that govern employee benefit plans, potentially impacting how CUNA Mutual Group structures its pension offerings. For instance, changes to tax policies or pension funding requirements could affect administrative decisions regarding contribution levels or payout structures for defined benefit plans. It is imperative for employees to stay apprised of these regulations so they can understand any changes that might occur in their future benefits and what steps CUNA Mutual Group might take to adapt to new compliance needs.

Regulatory changes, such as adjustments in pension funding requirements or tax policies, can have a substantial impact on CUNA Mutual Group’s pension plan design. Changes in laws may require adjustments to benefit levels, contribution structures, or funding strategies. Employees should monitor such regulatory shifts to understand how they could influence future pension payouts and retirement strategies.

Could you explain the process employees at CUNA Mutual Group would need to undertake to access their retirement benefits upon leaving the company? For employees transitioning from CUNA Mutual Group to other ventures, itâ€™s essential to understand the process involved in accessing retirement benefits. This process may involve determining eligibility for pension payouts, selecting between lump-sum distributions or annuitized payments, and understanding how past contribution levels affect final benefits. Employees are encouraged to seek guidance from the HR department or pension plan administrators to navigate this process thoroughly.

When leaving CUNA Mutual Group, employees need to assess their eligibility for pension benefits, choose between lump-sum payouts or annuities, and understand how their years of service and contributions affect the final payout. It's advisable to consult with HR or a plan administrator to navigate the options and ensure that the benefits are accessed appropriately.

What tools and resources does CUNA Mutual Group provide to assist employees in planning for retirement effectively? CUNA Mutual Group offers various resources designed to support employees in their retirement planning journey. These might include access to financial planning tools, informational webinars about defined benefit and contribution options, or one-on-one consultations with benefits specialists. Employees should actively participate in these offerings as a means of optimizing their retirement readiness and ensuring they are leveraging all available benefits to the fullest extent.

CUNA Mutual Group offers several resources for retirement planning, such as access to financial planning tools, retirement webinars, and consultations with benefits specialists. These resources are designed to help employees make informed decisions about their defined benefit and defined contribution options, ensuring they optimize their retirement strategies.

How does the CUNA Mutual Group approach the issue of pension funding, and what implications does this have for current and future employees? The funding strategy for the pension plan at CUNA Mutual Group has significant implications for the benefits that employees can expect. A well-funded pension plan can provide assurance for employees about the stability and security of their retirement income. Conversely, fluctuations in the funding status could lead the organization to consider changes in benefit formulas or contribution strategies. Employees should be aware of how funding levels could affect their future benefits and the overall health of the pension plan.

CUNA Mutual Group’s pension funding strategy is critical to maintaining the stability of retirement benefits. A well-funded plan assures employees of predictable payouts, while underfunded plans may lead to changes in benefit formulas or contributions. Employees should stay informed about the funding status, as it could affect the future security of their pension income.

What should employees at CUNA Mutual Group know about the potential risks and benefits associated with their defined benefit plan? Employees should have a clear understanding of the inherent risks and benefits linked to CUNA Mutual Group's defined benefit plan. While these plans offer predictable retirement income, they are subject to various risks such as underfunding issues, market volatility, and regulatory changes. This understanding equips employees with knowledge about their eventual retirement income and helps them plan strategically alongside their professional developments or transitions within their careers.

Employees need to understand that defined benefit plans at CUNA Mutual Group provide predictable retirement income but come with risks such as underfunding, economic fluctuations, and regulatory changes. By staying informed about these risks, employees can better plan for their financial security in retirement, potentially supplementing their pension with other savings strategies.

What happens to my retirement benefits if CUNA Mutual Group decides to freeze its defined benefit plan? The implications of freezing a defined benefit plan at CUNA Mutual Group would be substantial for employees. Understanding the details surrounding such a freeze, including whether it would impact future accruals or merely limit new benefits for incoming participants, is crucial. Employees should consider consulting HR for comprehensive information regarding their specific situations and how a freeze could influence their expected retirement payouts.

If CUNA Mutual Group freezes its defined benefit plan, employees may no longer accrue new benefits, though they retain previously earned benefits. A freeze could impact future retirement income, particularly for employees nearing retirement, as they could miss out on years of service accruals or salary increases factored into their final benefit calculation.

How can employees contact CUNA Mutual Group to inquire further about their retirement benefits and related services? To learn more about retirement benefits, employees should reach out directly to CUNA Mutual Groupâ€™s HR department or designated pension plan administrators. The organization provides channels such as in-person meetings, phone consultations, and online resources which are specifically structured to assist employees with inquiries related to their retirement benefits and participant obligations. Employees can also explore dedicated web portals for additional information and updates on their pension plans.

Employees can contact CUNA Mutual Group directly through their retirement solutions division at 1-800-356-2644 or visit the website at CUNA Mutual Retirement Solutions for more information about retirement planning services and personalized assistance with their retirement benefits.