Four Retirement Planning Tools Available to Chevron Employees
Maximize the Utility of Your Chevron Retirement Plan
Are you a Chevron employee looking to make the most out of your retirement plan? If so, you may be wondering if you are utilizing all of the tools that are available. Here are some helpful tips to ensure you’re fully leveraging your Chevron retirement benefits.
It is common for Chevron employees to wonder if they have saved enough for the next stage of their life. By taking advantage of the methods listed below, you can rest assured that you are making the most of the financial and tax strategies available.
Make the Most of Chevron’s Long-Term Incentive Plans (LTIPs) Offered
For many key and highly compensated employees, Chevron has additional Long-Term Incentive Plans (LTIPs) in place that help employees save for retirement. Some of these LTIPs are given as Restricted Stock Units (RSUs), Stock Options, and Performance Share Units (PSUs). These incentive plans provide Chevron employees with the ability to earn or buy discounted company stock as a result of achieving certain required performance goals, or years of service.
Each of these incentive plans are taxed differently and if not planned for correctly, can leave an employee holding a larger than desired tax bill. In order to optimize the taxation of these plans, Chevron employees should consult a CPA or financial planner in regards to the vesting of RSUs and PSUs, as well as the exercising of ISOs.
Pension Plan Lump Sums
Chevron has a generous pension plan in place for their employees. This plan is funded entirely by Chevron and requires no contributions from the employee. The pension calculation is based on a formula that considers years of service as well as salary amounts.
The pension benefit is then adjusted based on a number of variables, one of them being segment rates. These rates can greatly affect the benefit and it is encouraged to talk to a financial planner to analyze the impact on your specific scenario and retirement date.
There are a variety of methods available to Chevron employees for the reception of Pension benefits. These include an assortment of annuity options along with the ability to withdraw the present value of all annuity payments in the form of a lump sump.
We typically recommend the lump sum option for a number of reasons. When you choose to take your pension as an annuity, there is a lack of control over the investment of the funds or the timing of disbursements. If the lump sum is elected, you will receive the entirety of your pension account value when you retire.
This lump sum can then be rolled over into a tax-advantaged account, like a Traditional IRA, which allows for greater flexibility regarding investment options and distributions. If the lump sum option is utilized, Chevron employees have all of the cash in their control and if invested correctly, can allow for generational wealth.
Mega Backdoor Roth Conversions
The Mega-Backdoor Roth Conversion is a planning strategy that makes use of the tax-free nature of Roth IRA accounts. This strategy can be utilized within the Employee Savings and Investment Plan (ESIP) while you are still employed at Chevron.
To take advantage of this strategy, a Chevron employee will max out either their Pre-Tax or Roth contributions to their 401K plan (2023 Limit is $22,500, $30,000 if age 50 or older). Chevron will make a matching contribution of 8% of your salary for income earned up to $330,000, which amounts to $26,400.
After maxing their Pre-Tax and Roth contributions, the Chevron employee will then contribute After-Tax funds up to the IRS limit ($66,000 in 2023, $73,500 if age 50 or older). The After-Tax contribution should then be converted to a Roth IRA account.
This conversion should be completed as soon as the After-Tax contribution is made, as any gains on the funds are taxable when rolled to the Roth IRA. After the funds are rolled into the Roth IRA, they are able to grow and be withdrawn tax-free.
While this is one of the most lucrative retirement planning strategies available to Chevron employees, it is also incredibly complex. The ESIP is structured with both basic and supplemental accounts within the plan. If the rollover to a Roth IRA is completed with funds from the incorrect contribution designation, you can be barred from participation within the savings plan.
It is highly recommended to consult a financial professional regarding this strategy. To schedule a meeting with our team, please reference the button at the bottom of the article.
Net Unrealized Appreciation
Net Unrealized Appreciation or NUA is a beneficial tax strategy that allows a Chevron employee to have their company shares be taxed at the preferential capital gains tax rates instead of their ordinary income tax rates. NUA is optimal for Chevron employees who hold low-cost and highly appreciated Chevron shares within their company’s savings plan. In order for this strategy to be applicable, an employee must be eligible for a distribution from their qualified plan, generally at retirement or age 59.5.
For more information regarding this strategy, please refer to our Net Unrealized Appreciation article.
The appreciated value of the stock above its basis is not taxed at the higher ordinary income rate, but at the lower long-term capital gains rate which is currently 15%. This could could result in savings of up to 22% in taxes.
Conclusion
Chevron employees can take advantage of the various retirement planning tools available to them to ensure that they are able to retire comfortably. With the right combination of these tools, employees can maximize their retirement savings and ensure that they have the financial security they need in their later years. With careful planning, Chevron employees can be sure that they are making the most of their retirement savings.
Need Some Help?
If you’d like some help from a CPA or CERTIFIED FINANCIAL PLANNER (CFP®) professional regarding these strategies and how they apply to you, the Rhame & Gorrell Wealth Management team is here to help.
Our experienced Wealth Managers can help you review your financial and tax situation and come up with a custom tax optimization strategy going forward.
Feel free to contact us at (832) 789-1100, [email protected], or click the button below to ask a question or schedule your complimentary strategy session today.
IMPORTANT DISCLOSURES:
Rhame & Gorrell Wealth Management is not affiliated with or endorsed by Chevron
Rhame & Gorrell Wealth Management, LLC (“RGWM”) is an SEC registered investment adviser with its principal place of business in the State of Texas. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that RGWM has attained a certain level of skill, training, or ability.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own CPA or tax professional before engaging in any transaction. The effectiveness of any of the strategies described will depend on your individual situation and should not be construed as personalized investment advice.
For additional information about RGWM, including fees and services, send for our Firm Disclosure Brochures as set forth on Form ADV Part 2A and Part 3 by contacting the Firm directly. You can also access our Firm Brochures at www.adviserinfo.sec.gov. Please read the disclosure brochures carefully before you invest or send money.
