3 Roth Rollover Strategies for Nokia Employees

Table of Contents

Introduction

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Minimizing taxes is an important part of a successful retirement plan for Nokia 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 Nokia 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 Nokia 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 Nokia 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 Nokia 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 Nokia 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 Nokia 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 Nokia 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 Nokia 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 Nokia-sponsored plan can be a little more complicated. You will generally need to wait until you leave Nokia to access the money in your Nokia-sponsored plan, although some employers allow “in-service distributions.”

 

You’ll need to contact your Nokia plan manager directly to begin the Roth conversion. Let Nokia know you’d like to roll over the assets directly to the financial institution where your Roth IRA is held. If your Nokia 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 Nokia 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 Nokia 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), Nokia 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 Nokia HR Department.

 What Case Would Roth Rollovers Not Be Good for You

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Roth conversions are not for all Nokia 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 unique features and benefits does the Nokia Retirement Income Plan offer to its participants, and how can these benefits be maximized by current employees of Nokia of America Corporation? Additionally, what resources are available for employees to educate themselves about the various aspects of the plan, including eligibility, distribution options, and potential tax implications?

The Nokia Retirement Income Plan offers participants a defined benefit plan designed to provide financial security through retirement by supplementing Social Security and other retirement savings. Benefits can be maximized through strategies like ensuring accurate service records, understanding distribution options such as lump-sum payments or annuities, and consulting financial advisors to align these benefits with long-term retirement goals​(Nokia of America Corpor…).

How does participation in the Nokia Retirement Income Plan facilitate financial security in retirement for employees, specifically in terms of pension benefit calculations and options such as lump-sum distributions or annuities? Moreover, what are some strategies that Nokia of America Corporation employees can employ to ensure they are fully prepared to utilize their retirement benefits as they transition towards retirement?

Participation in the Nokia Retirement Income Plan ensures financial security in retirement through pension benefit calculations based on service years and salary history. Employees can choose from options like lump-sum distributions or lifetime annuities. By carefully selecting a distribution option and incorporating it into a broader retirement strategy, employees can optimize financial outcomes​(Nokia of America Corpor…).

With respect to changes in personal circumstances, such as marriage or divorce, what provisions does the Nokia Retirement Income Plan have to protect the benefits of employees from Nokia of America Corporation? How can employees navigate the complexities of Qualified Domestic Relations Orders (QDROs) within the context of their pension benefits, and what resources are available to assist them in this process?

The Nokia Retirement Income Plan protects benefits in cases of personal changes such as marriage or divorce through provisions like the Qualified Domestic Relations Order (QDRO). Employees can consult the Nokia Benefits Resource Center for assistance in navigating QDROs to ensure a fair division of benefits. Guidance is available for understanding the QDRO requirements and how they apply to their pension​(Nokia of America Corpor…).

What steps must employees take to initiate the commencement of their benefits from the Nokia Retirement Income Plan once they reach retirement age? Furthermore, what are the important considerations employees need to keep in mind regarding the selection of a payment form and any potential impact this may have on their overall financial strategy during retirement?

To initiate pension benefits under the Nokia Retirement Income Plan, employees must submit a claim when they reach retirement age. They should consider factors such as payment form options (lump sum or annuity) and the impact on long-term financial plans. Choosing the appropriate payment form is critical to maximizing retirement income​(Nokia of America Corpor…).

How can employees of Nokia of America Corporation ensure their beneficiaries are properly designated under the Nokia Retirement Income Plan, and what implications does this designation have for benefit distribution in the event of their death? Additionally, what steps should employees take to update their beneficiary designations in light of significant life events?

Employees can ensure their beneficiaries are properly designated by updating their beneficiary forms through the Nokia Benefits Resource Center. Proper designation affects how benefits are distributed in the event of their death, and it is crucial to update designations after life events like marriage, divorce, or the birth of a child​(Nokia of America Corpor…).

In terms of compliance with federal regulations, how does the Nokia Retirement Income Plan adhere to ERISA guidelines concerning employee benefits, and what rights do employees of Nokia of America Corporation possess under these regulations? Also, how can employees exercise their rights effectively if they encounter issues regarding their pension benefits?

The Nokia Retirement Income Plan complies with the Employee Retirement Income Security Act (ERISA), giving employees the right to receive information about their benefits and hold fiduciaries accountable. If employees face issues with their pension, they can exercise their rights through claims and appeals, with recourse available through legal action if necessary​(Nokia of America Corpor…).

How does the Nokia of America Corporation support employees who might be eligible for a disability pension under the Nokia Retirement Income Plan, and what specific eligibility criteria must be met? Additionally, what resources are available to assist employees in understanding this facet of their retirement benefits?

Employees eligible for a disability pension under the Nokia Retirement Income Plan must meet specific criteria, such as proving permanent disability before reaching retirement age. Resources like the Nokia Benefits Resource Center can provide guidance on the eligibility process and required documentation​(Nokia of America Corpor…).

What specific actions should an employee of Nokia of America Corporation take when applying for a pension benefit under the Nokia Retirement Income Plan, and what documentation is typically required to streamline this process? Furthermore, in the event of a claim denial, what recourse do employees have to challenge the decision through the plan's appeal process?

When applying for pension benefits, employees should provide documentation such as proof of age and employment history. In case of a denial, they have the right to appeal through the Employee Benefits Committee. If necessary, employees can further appeal to federal courts under ERISA​(Nokia of America Corpor…).

How does the pension benefit guarantee from the Pension Benefit Guaranty Corporation (PBGC) apply to employees of Nokia of America Corporation, and what are the limitations of this guarantee in protecting retirement benefits? Additionally, how can understanding these protections help employees make informed decisions regarding their retirement planning?

The Pension Benefit Guaranty Corporation (PBGC) guarantees benefits under the Nokia Retirement Income Plan in case the plan terminates. However, there are limitations, such as caps on benefit amounts. Understanding these protections helps employees make informed decisions about their retirement planning​(Nokia of America Corpor…).

How can employees contact the Nokia Benefits Resource Center to gain more information about their benefits and the specific resources available under the Nokia Retirement Income Plan? What are the recommended communication channels and hours for reaching out to ensure timely and effective assistance?

Employees can contact the Nokia Benefits Resource Center through the Your Benefits Resources (YBR) website or by calling the designated phone line. It is recommended to use these channels during business hours (9:00 a.m. to 5:00 p.m. ET) for timely assistance with pension-related questions​(Nokia of America Corpor…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Nokia provides both a defined benefit pension plan and a 401(k) savings plan. The defined benefit plan includes legacy plans from Alcatel-Lucent and Siemens, providing retirement income based on years of service and final average pay. In 2021, Nokia merged its Retirement Plan (NRP) with the Lucent Technologies Inc. Pension Plan (LTPP) to streamline management. The 401(k) plan offers diverse investment options and company matching contributions.
Operational Efficiency: Nokia is undergoing a restructuring process that includes layoffs affecting about 5,000 employees globally. Strategic Focus: The company is shifting its focus towards 5G technology and network infrastructure (Source: Reuters). Financial Performance: Nokia reported a 7% increase in net sales for Q2 2023, reflecting strong demand for its 5G products (Source: Nokia).
Nokia provides both RSUs and stock options to its employees. RSUs vest over time, converting into shares, while stock options allow employees to buy shares at a set price.