3 Roth Rollover Strategies for L3Harris Employees

Table of Contents

Introduction

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Minimizing taxes is an important part of a successful retirement plan for L3Harris employees and retirees. The less money you spend on taxes, the more you’ll have to live the retirement you’ve dreamt of. But keeping taxes low can be a challenge when most of your L3Harris retirement savings have been accumulated in pre-tax accounts like your 401(k) or Traditional IRA.

 

One way to help you keep taxes low in retirement from L3Harris is by having multiple sources of income you can withdraw from, including after-tax sources like a Roth IRA. This would allow you to avoid needing to withdraw too much from pretax sources that could generate hefty tax bills. The challenge, however, is that the IRS has income limits on who can make Roth IRA contributions. If your Modified Adjusted Gross Income (MAGI) is over a certain threshold, you can’t contribute to a Roth IRA – unless you use a Roth rollover.

 

A Roth rollover, or conversion, is a workaround that allows you to take advantage of a Roth IRA, and its many tax benefits, regardless of your income. While this can be an excellent strategy for your L3Harris retirement planning, it’s not right for everyone. And once a Roth conversion is done, it can’t be undone! Before you attempt a Roth conversion on your own, make sure to educate yourself on the pros and cons.

 

We created this eBook to guide L3Harris employees and retirees through the Roth conversion process and help you decide if it’s the right move for you. For more information, schedule a no-obligation consultation with our financial team. Our financial advisors are specialized in this area and would love to meet with you to review your options.

 

If you have any questions you can reach out to your L3Harris HR Department.

What Exactly is a Roth Rollover?

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A Roth IRA rollover, also called a Roth conversion, transfers 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, but then get to keep the money in the Roth IRA where it can grow tax-free.

Since Roth IRAs are not subject to Required Minimum Distributions (RMDs) and Roth distributions aren’t taxable, Roth conversions can help minimize taxes in your L3Harris retirement. They can be particularly advantageous for people who have large Traditional IRA or retirement account balances and don’t want to end up with large tax bills 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.

Roth Rollovers in Action

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From experience with L3Harris employees and retirees, we have found that giving an overview of Roth conversions can be useful. 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 need 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 substantial tax bill for the year.

 

Any amount you roll over from a Traditional IRA or 401(k) to a Roth IRA must be included as income on your New Jersey state tax return the year you withdraw them from the Traditional IRA.

 

The easiest way to do a Roth conversion is as a direct rollover from one IRA account to the other. Simply tell your financial advisor that you’d like to transfer the money from your Traditional IRA directly to a Roth IRA either at the same provider or another 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 L3Harris 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 L3Harris-sponsored plan can be a little more complicated. You will generally need to wait until you leave L3Harris to access the money in your L3Harris-sponsored plan, although some employers allow “in-service distributions.”

 

You’ll need to contact your L3Harris plan manager directly to begin the Roth conversion. Let L3Harris know you’d like to roll over the assets directly to the financial institution where your Roth IRA is held. If your L3Harris plan sends you a check, it will withhold 20 percent of the balance to cover the taxes of a distribution. You’ll then have 60 days to put the money, plus the 20 percent that was withheld, into your Roth IRA. If you miss this deadline, you may owe a 10 percent early withdrawal penalty if you’re under 59-½ years of age.

 

Once the conversion is complete, you generally need to leave the assets in the Roth IRA for five years to avoid any penalties and taxes. After the five-year requirement has been met, distributions from a Roth IRA are tax- and penalty free provided you are at least 59-½ years of age. If you’re younger than this, you can still access your contributions tax and penalty-free after the five years have elapsed, but any earnings you withdraw will be taxed and penalized.

 

Note that you must take your RMD before doing a Roth conversion. You also cannot convert a RMD into a Roth. The IRS generally limits you to one rollover every 12 months. You also cannot make a rollover from the receiving IRA during this period.

 

If you have any questions you can reach out to your L3Harris HR Department.

 

Real World Example

 

The real advantage of a Roth conversion lies in the power of compounding. 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 inherit.

 

Doing so also allowed her to reduce her RMDs during that time period by more than $136,000.[6-9]

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Why You Should Use Roth Rollovers

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Roth rollovers can provide many benefits to L3Harris employees and retirees, including:

  • TAX-FREE WITHDRAWALS: After the five-year rule has been satisfied, you can withdraw money from your Roth IRA without owing taxes. This makes Roth IRAs potent, long-term saving vehicles as your earnings 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 access them at any time after the five-year aging rule has been satisfied. That said, the longer you leave the money in the account, the more it can benefit from that tax-free growth. Also note that if you withdraw your investment earnings before age 59-½, you’ll owe ordinary income taxes plus a 10 percent penalty on that amount.

 

  • NO RMDS:  Roth IRAs are also exempt from RMDs. This makes the tax-free growth within a Roth even more advantageous, as you can leave the money in the account beyond your RMD age.

 

  • ESTATE PLANNING TOOLS:  Since you are not required to withdraw money from a Roth IRA, they can be powerful estate planning tools. Your beneficiaries will have to take RMDs, but they can do so without paying federal income taxes on their withdrawals after the five-year rule has been met.

 

  • A WORK-AROUND FOR INCOME RESTRICTIONS:  A Roth conversion lets you access all of the above benefits of a Roth IRA even if you earn above the IRS’s Roth IRA contribution income limits. By first putting the money into a Traditional IRA, which has no income restrictions, then moving it into your Roth IRA, you can use this backdoor approach to funding a Roth.

Roth Rollover Downsides

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Given the many advantages to a Roth rollover, you may wonder why someone wouldn’t want to do one. But there are drawbacks to the strategy as well.     

 

The main disadvantage to Roth rollovers is the cost. You will have to pay taxes on any amount you convert. If you make a significant rollover or are in a high-income tax bracket at the time of the conversion, this could result in a hefty tax bill. If you convert a significant amount, you also run the risk of getting bumped into a higher tax bracket, which would raise your bill even more.

 

Some people choose to use part of the converted balance to pay the tax bill, much like when you withdraw from your 401(k), L3Harris withholds 20 percent of the amount you request. This strategy means you’ll have less money invested in the Roth to benefit from the tax-free growth. It’s also not recommended if you do the conversion before turning 59-½, because this may trigger the 10 percent early withdrawal penalty on top of the taxes you’ll already owe.

 

Another disadvantage to Roth conversions is the five-year rule. You have to wait at least five years to withdraw converted money from a Roth IRA to avoid taxes and a potential penalty. So, if you think you’ll need the money sooner than your conversion’s five-year birthday, you may not want to put it into a new Roth.

 

If you have any questions you can reach out to your L3Harris HR Department.

 What Case Would Roth Rollovers Not Be Good for You

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Roth conversions are not for all L3Harris employees and retirees. Here are some of the instances when you wouldn’t make a Roth roll-over:

  • 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 much sense to do a conversion if you think you’ll be in a lower tax bracket later on. New Jersey is not considered a tax-friendly state, so if you plan to relocate from New Jersey when you retire to a lower tax state, such as Florida or Virginia, for example, you may do better to postpone your conversion until then.

 

  • YOU CAN’T PAY THE CONVERSION TAXES:  Roth conversions will raise your tax bill the year you make the conversion. If you don’t have the funds to pay that bill now, you should probably avoid the conversion. As discussed above, using a portion of the rollover to pay your tax bill only counteracts the tax saving benefits of the rollover.

 

  • THE ROLLOVER WILL RAISE YOUR TAX BRACKET:  Since Roth conversions are included as income on your New Jersey and federal tax return, they can bump you into a higher marginal tax bracket. If this is an issue, you may want to spread your conversion out over multiple years.

 

  • YOU’LL NEED THE MONEY IN LESS THAN FIVE YEARS:  If you think you’ll need to use the money you’re planning to convert in less than five years, there’s likely no reason to convert it as you’ll end up paying taxes anyway.

Are Roth Rollovers worth it?

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Ultimately, Roth conversions are personal decisions. Since everyone’s situation is different, the decision of whether to make a conversion or not needs to be made on a case-by-case basis.

 

If you’re still unsure if a Roth rollover is right for you, consult a financial advisor. At Foran Financial Group, we can evaluate the potential tax impacts of a Roth conversion, both this year and in the future. If the numbers don’t line up this year, there’s always next year.

About The Retirement Group    

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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

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What specific factors should L3Harris Technologies employees consider when determining the most suitable form of pension benefit at retirement? Employees of L3Harris Technologies may have various options, such as life annuities, contingent annuities, and lump-sum payouts. Understanding the implications of each option, including tax treatments and benefit guarantees, can be crucial in making a decision that aligns with long-term financial goals. It is also important to consider how the selected form may affect survivor benefits and overall retirement income planning.

Pension Options at Retirement: L3Harris Technologies employees have various pension benefit options to consider at retirement, such as life annuities, contingent annuities, and lump-sum payouts​(L3Harris Technologies I…). Each option has different tax treatments, survivor benefits, and guarantees. For example, selecting a life annuity ensures a fixed monthly payment for life, while a lump-sum payout might offer more flexibility but comes with immediate tax implications. Employees should evaluate how each option aligns with their long-term financial goals and whether it provides adequate survivor protection for dependents​(L3Harris Technologies I…).

How does L3Harris Technologies determine eligibility for early retirement, and what implications does this have for pension benefits? Employees should familiarize themselves with the criteria for qualifying for early retirement, including age and service requirements. Additionally, understanding the benefits that are available should retirement occur before the standard retirement age can affect financial planning, as these benefits can differ significantly from those available at normal retirement age due to reduction factors or penalties.

Early Retirement Eligibility: L3Harris Technologies determines eligibility for early retirement based on age and years of service. Employees may qualify for early retirement if they are at least 55 years old and have completed 10 years of service​(L3Harris Technologies I…). Opting for early retirement can result in a reduced pension benefit due to the longer payment period. These reductions, known as early retirement penalties, affect financial planning since the payout is lower compared to waiting until the normal retirement age​(L3Harris Technologies I…).

In what ways do the pension formulas at L3Harris Technologies differ, and how can employees assess which plan is most advantageous for their retirement? Employees participating in the L3Harris pension plan can choose between different formulas, such as the Traditional Pension Plan and the Pension Equity Plan. Assessing which formula may yield higher benefits involves understanding the benefits calculation processes, including how each formula accounts for years of service, salary history, and participation criteria, which can significantly impact total retirement income.

Pension Formulas: L3Harris employees can choose between different pension formulas, such as the Traditional Pension Plan and Pension Equity Plan​(L3Harris Technologies I…). The Traditional Plan is based on years of service and final average pay, while the Pension Equity Plan uses a lump-sum formula that accrues value over time. Understanding how each formula calculates benefits is essential for employees to determine which plan will provide higher retirement income, depending on their service years and salary history​(L3Harris Technologies I…).

How should L3Harris Technologies employees prepare for the selection of a beneficiary, and what are the potential impacts on their pension benefits? Selecting a beneficiary is an important component of retirement planning. Employees at L3Harris Technologies must understand the implications that come with adding a spouse or other individuals as beneficiaries, including the effect on benefit amounts and how beneficiary selection can influence survivor payouts. Moreover, they should familiarize themselves with the requirements for updating beneficiary information and the legal implications of such designations.

Beneficiary Selection: Choosing a beneficiary is a crucial step for L3Harris employees. Adding a spouse or another individual as a beneficiary may reduce the employee's pension benefit but ensures that a portion of the pension continues after the employee's death​(L3Harris Technologies I…). Employees should be aware of the survivor benefit provisions, spousal consent requirements, and the need to regularly update their beneficiary information​(L3Harris Technologies I…).

What procedures must L3Harris Technologies employees follow to appeal a denied pension benefit claim, and what timelines should they be aware of? Employees should be well-informed about the steps involved in the appeals process for denied claims, including how and when to file an appeal and the importance of providing adequate documentation. Understanding the statutes of limitations related to claims and appeals can significantly influence the outcomes for employees seeking to reinstate or secure their benefits.

Appealing Denied Claims: L3Harris Technologies employees must follow a formal process to appeal denied pension benefit claims​(L3Harris Technologies I…). The process includes submitting an appeal within a specific timeframe and providing supporting documentation. It is important to be familiar with the statute of limitations and administrative remedies to ensure the best chance of success when appealing a decision​(L3Harris Technologies I…).

How does L3Harris Technologies handle survivor benefits, and what actions should employees take to ensure that their surviving spouses or partners have access to these benefits? Understanding the components of survivor benefits at L3Harris Technologies is crucial. Employees should learn about the eligibility of their spouses or partners following their death, the type of benefits due, and any actions required to secure these benefits. Familiarity with the plan’s rules surrounding survivor benefits and timelines for elections can also affect the financial security of beneficiaries.

Survivor Benefits: L3Harris offers survivor benefits to spouses or designated beneficiaries​(L3Harris Technologies I…). Employees must ensure that their spouse or partner is properly designated to receive these benefits, which may involve selecting an annuity option that provides continued payments to the survivor. Understanding the timelines for making these elections and the rules governing survivor benefits is crucial for securing financial support for loved ones​(L3Harris Technologies I…).

What resources are available for L3Harris Technologies employees for receiving personalized retirement counseling, and how can these resources aid in making informed financial decisions? Employees may benefit from accessing professional counseling services or informational resources provided by L3Harris Technologies. These resources can include individual retirement planning sessions that help employees align their pension benefits with their overall retirement strategy, ensuring that they utilize their benefits effectively and are informed about their options.

Retirement Counseling Resources: L3Harris provides personalized retirement counseling services to assist employees with their pension and retirement planning​(L3Harris Technologies I…). These resources include individual sessions to discuss how pension benefits fit into overall retirement strategies. By leveraging these services, employees can make well-informed decisions about their financial future​(L3Harris Technologies I…).

How can employees of L3Harris Technologies find out more about their eligibility for the Cash Balance Plan and the advantages of this plan over traditional pension formulas? Employees should research what defines an "active Cash Balance Plan Participant" as well as the benefit calculations associated with it. Investigating the elements that set this type of plan apart—specifically regarding lump-sum distributions and the ability to track benefits—can better inform employees about the potential advantages for their future retirement income.

Cash Balance Plan: Employees interested in the Cash Balance Plan can research its advantages over traditional pension formulas. The Cash Balance Plan allows for lump-sum distributions and provides clear benefit tracking, which can be more appealing to employees looking for flexibility and control over their retirement funds​(L3Harris Technologies I…).

What impact do potential changes to the L3Harris Technologies pension plan have on current employees, and what steps should they take to stay informed about such changes? Employees should remain vigilant regarding any amendments to the pension plan that could influence their retirement benefits. This includes understanding their rights under ERISA and staying engaged with communication from L3Harris regarding plan updates, ensuring that they are equipped to make timely decisions based on the latest information.

Plan Changes: L3Harris employees should stay updated on any changes to the pension plan, which could impact their benefits​(L3Harris Technologies I…). Monitoring communications from the company and understanding their rights under ERISA is essential to making timely decisions based on new plan terms or amendments​(L3Harris Technologies I…).

How can employees of L3Harris Technologies contact the Benefits Service Center to address specific questions regarding their pension plan or retirement strategy? It is essential for employees seeking clarity on their pension benefits or retirement planning to know how to reach out to the L3Harris Benefits Service Center. This center acts as a vital resource, and understanding its operations—including contact times, methods of contact, and the types of inquiries that can be addressed—will enable employees to receive the guidance they need regarding their benefits.

Benefits Service Center: L3Harris employees can contact the Benefits Service Center for any questions regarding their pension or retirement strategy. The center provides assistance with understanding pension benefits, resolving issues, and addressing specific inquiries related to retirement planning​(L3Harris Technologies I…)​(L3Harris Technologies I…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
L3Harris offers a defined benefit pension plan known as the L3Harris Salaried Pension Plan. The plan provides retirement benefits based on a formula considering years of service and final average pay. In recent years, L3Harris has frozen certain pension plans acquired through mergers, affecting the accrual of new benefits for some employees. Additionally, the company provides a 401(k) plan with company matching contributions to support employees' retirement savings. Financial planning resources are also available.
Layoffs and Restructuring: L3Harris Technologies is laying off about 2,000 employees as part of a restructuring plan to streamline operations and reduce costs (Source: Defense News). Strategic Adjustments: The company is focusing on its core defense and aerospace businesses. Financial Performance: L3Harris reported a 10% increase in net income for Q4 2023, driven by strong demand for its defense products (Source: L3Harris).
L3Harris provides both RSUs and stock options as part of its employee compensation. RSUs vest over time, converting into shares, while stock options allow employees to purchase shares at a fixed price.
L3Harris Technologies has taken significant steps to enhance its employee healthcare benefits in recent years, recognizing the importance of adapting to the current economic, investment, tax, and political environment. In 2022, the company implemented comprehensive health plans that cover medical, dental, and vision care, along with mental health support and wellness programs. These benefits are designed to support employees' overall well-being, ensuring they have access to necessary healthcare resources to maintain a healthy work-life balance. Additionally, L3Harris's commitment to creating a safe and supportive work environment is evident through its structured environmental, health, and safety (EHS) initiatives, which aim to mitigate workplace risks and promote a culture of safety. In 2023, L3Harris continued to build on these initiatives by offering enhanced mental health support and flexible work schedules to better accommodate employees' personal and professional lives. The company's benefits package includes competitive compensation, on-site health and wellness centers, and financial tools to help employees manage their finances effectively. These comprehensive benefits are designed to create a supportive and inclusive work environment, essential for attracting and retaining top talent in today's competitive job market. By investing in robust healthcare benefits, L3Harris aims to foster a resilient workforce capable of navigating the complexities of the current economic landscape.