Thread regarding Chevron Corp. layoffs

I don’t know what all the noise is about. The OP asked about a Roth backdoor rollover for his/her lump. It is an option that makes good sense for some, but probably not most. See the calculator I referenced in a previous post: it’s a good off the cuff estimate but such transactions are complicated and require professional advice to confirm it will be a good match for your specific case. For most of the people posting, who obviously know nothing about this financial option, why do you feel the need to expose your ignorance? Learn to live and let live: you will be happier!

Like you said, @1hii, the time to have be investing your money in a Roth IRA was while employed and contributing a little each year to it. You should know the Roth earnings become tax free after 5 years invested. It’s cost basis weighted too. The first Dollar and the last Dollar must have been invested for 5 years before it can be withdrawn tax free. I’d say that part of your lump sum can be put into a Roth if you like, but not all of it. Put as much as you know won’t be touch for beyond 5 years.

Some of you need financial help. Someone mentioned the 401K, which is nothing to do with the pension or lump sum. Another lady mentioned the back door Roth, which everyone should be doing every single year pre-retirement but is also nothing to do with the lump sum.

The Roth issue with the lump sum is that there is an option to receive the full lump sum as a rollover into into an existing Roth IRA. This will cause the lump sum to be fully taxed in the year you receive it, which would be a horrific hit (like 25%-30%). Not recommended.

To Rothify the lump sum, roll it into a Traditional IRA account, then convert a portion of it to a Roth IRA each year. Don't convert too much in any one tax year or you will pay income tax on it. If you are retired and have no income, you can convert convert quite a bit (e.g. $100,000/yr) at zero or very low income tax rates. Because it is Roth, you then never pay tax when you eventually withdraw the money. This is the advantage of Rothifying the lump sum - you may be able to completely eliminate any income tax which increases the value of the lump 30%.

There are a couple other threads with hundreds of posts which basically demolish the annuity as a financial choice. If you have other emotional reasons for taking it, so be it, but mathematically it is light years behind the lump sum. If you have an emotional need for the annuity, it is the perfect choice and at least one person on here claims to have taken it.

No, only your heirs will have a minimum withdrawal rate, so the Roth conversion is best for those that never need the money ... can pay the tax from other moneys, enjoy high risk investments, will have a long life, and expect big future increases in the tax rate.

"You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020). Roth IRAs do not require withdrawals until after the death of the owner."

Conversion calculator
https://www.schwab.com/ira/understand-iras/ira-calculators/roth-ira-conversion

Cost benefit: Lump size, investment return, years until withdrawal, current and future state tax rate, current and future federal tax rate ... and the other big one .... can you pay the whole Roth rollover tax bill from another source of after tax money (that is an after tax brokerage or other savings account) or will you need to pay it out of the converted lump (it the latter don't even think about it as your numbers will not work out in your favor for the conversion). Note also the referenced calculator is not sophisticated enough to consider your age limit forced withdrawal rates or the implications of your possible early death. As I said below, I was not convinced a conversion was a good idea for myself, because uncertainties in the factors where greater than the expected advantage (I do have enough to pay the tax from after tax accounts, but I am a moderate risk investor and have no shingle obvious heir to assume the IRA if I die early).

The biggest advantage of a Roth conversion is protection against future federal income tax increases.

ESIP accounts have some investment restrictions but can be rolled any time later into a traditional IRA if that becomes an issue. Backdoor Roth conversion is a whole different thing and it can not be rolled back. You are taxed upfront (lose about %50 of the money) but after that your investments grow tax free. I had a financial advisor who was keen on Roth conversions but the numbers did not seem to add up to me ... all your money growing pre-tax vs half your money growing tax free. The cost benefit includes rate of investment return and years before you withdraw the money, but the latter is restricted by minimum withdrawal rates after age 70 (in some cases your heirs can assume your Roth with similar withdraw rate obligations). Best case for the Roth conversion are when you can afford to be in very high risk investments (for high rates of return) and take minimum withdrawal rates, and currently live in a low tax state but plan to retire in a high tax state. There may be other factors, but I plan to just roll the lump in with my previous traditional IRAs from previous employer plan rollovers....I like to consolidate my accounts to the extent possible.

Some people are not aware of the 55-rule. If you are 55+ when you are laid off/retired you can access your current employers 401K without withdrawl penalty. However If you roll 401K to an IRA then you cannot access without penalty until 59 1/2. Something to think about in your retirement planning and how soon you need that money.

I do think option 2 is the best bet for most. Thanks for sharing for those that might be struggling to make a choice.

Fidelity is also a great source of information for those that need it.

Noble did this several years ago. Good bye pension and pension insurance