When I look at my 401k in my online Fidelity profile, I see another entry for "Chevron Retirement Restoration Account" with a nice chunk of change. What is this? How did I get it? Can I manage how the money is invested? How is it taxed?
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Oh, nobody here really cares about the RRP because all of us who visit this website are below the PSG26 pay grade and it doesn’t apply to us, so terminate this thread and go away.
DO THIS: The fine print says to check with your financial advisor. I know, blah blah blah, BUT SERIOUSLY you need to do that.
This chuck needs to be treated as a part of your diversified portfolio.
Ask your advisor to minimize tax consequences for your personal situation.
Wrong. They are invested in Treasuries. And you can change your election as long as the change delays payment.
When you defer payment the moneys are invested in Chevron midterm corporation bonds, which provide a low return. Delay payments to maybe get better tax treatment or just get the moneys out so you can invest in a higher paying more stock based account. It’s a balance that could go either way, but choose carefully because your elections can never be changed!
Chevron offers its executives who are at PSG 26 or higher a non-qualified payment called Retirement Restoration Plan (RRP). The RRP can be taken in different ways – either as a lump sum or in annual payments over up to ten years – this election must be made when you first enroll. If you do not chose any option at the time you first became eligible, you are assigned the lump sum option by default.
RRP is distributed at least 5 quarters after separation from service. The distribution can be changed at least twelve months prior to first payment but defers payment at least five years. Please note that your RRP amount grows at the ten-year treasury rate.
RRP benefits are subject to Social Security and Medicare taxes, typically in the year you separate from service. If you terminate in the last half of December, FICA earnings and taxes are reported and withheld in the year following termination.
Federal, state and local taxes are due and payable when RRP payments are made to you and no additional Social Security or Medicare taxes when RRP payments are made.
In many cases, having the distributions spread out over a longer period of time may reduce the tax burden in retirement. If this is an upcoming election, be sure to plan accordingly with consideration of other income source after retirement.
No, there are several options and you must choose and some choices are irreversible per federal rules.
If I recall correctly it will be paid to you as taxed cash within one year of your severance. No options to do anything other than receiving the cash payment, recorded as earnings for the tax year.
Oh so you rich rich
The first two responses make good points. There's also a state income tax angle to think about with the Retirement Restoration Account. If you take the payout as a lump sum or over a period of less than 10 years, then the state you were living in when you earned the benefit has the right to tax it -- even if you moved to another state after you retired. If you take it over 10 years or more, then it can be taxed only by the state you're living in when you receive each payment.
Because I spent my Chevron career in CA, I made sure to elect a 10-year payout and moved to a lower-tax state as soon as I could after retiring.
Chevron force you to elect a distribution method as soon as you hit PSG26. Read the plan description for more details. Choose carefully. The lump sum is best for most since it allows the lump to grow rather than sit there for a decade.
building on 1fxv response.....
RRP benefits are subject to Social Security and Medicare taxes, typically in the year you separate from service. If you terminate in the last half of December, FICA earnings and taxes are reported and withheld in the year following termination. Bottom line ... it is all taxed as normal income, like your salary is now. RRP is generally for PSG 26 and above since that is the group that had their benefits limited by IRS tax law. The distribution of RRP funds can be a bit tricky. You can lump sum it after severing or there are ways to get it distributed over longer periods (I think up to 10 years). However ....when I left 6 years ago, to get the funds spread out over years, you had to make that decision well before your severance date. I was asleep at the switch regarding that option so I had to take the lump sum. Maybe the rules have changed ... but it is in your best interest to investigate NOW how you can set up for distributed funds over many years.
There are limits (plan is governed by IRS tax law) that limit the amount that CVX can fund into the retirement account for highly compensated individuals (defined by IRS). Instead, that amount above the plan limit is deposited into your Retirement Restoration Account.
Once you retire, you can file an election to defer receipt of this "Retirement Restoration Account" amount
Hope this helps