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11 Common Roth IRA Mistakes Cigna Employees Should Avoid

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'Cigna employees should consider contributing to both a Roth IRA and a 401k to optimize tax-free growth and enhance retirement savings, while remaining mindful of contribution limits and withdrawal guidelines to avoid costly penalties.' – Paul Bergeron, a representative of The Retirement Group, a division of Wealth Enhancement.

'Cigna employees can enhance their retirement planning by using a Roth IRA alongside their 401k, while avoiding common mistakes like exceeding contribution limits and failing to update beneficiary information.' – Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

Common mistakes to avoid when managing a Roth IRA
Key differences between traditional and Roth IRAs
Strategies for optimizing Roth IRA benefits for Cigna employees

One of the best ways for Cigna employees to save for retirement is through an individual retirement account (IRA), with the Roth IRA standing out for its potential to provide tax-free withdrawals during retirement. However, managing a Roth IRA effectively requires a solid understanding of its rules. Errors such as incorrect beneficiary names, missed withdrawal guidelines, or exceeding contribution caps can result in penalties or the loss of tax-free benefits. To help your Roth IRA reach its full potential for long-term wealth creation, here are 11 common mistakes Cigna employees should avoid and tips on how to prevent them.

Important Takeaways

- Contributions to a Roth IRA must be based on earned income and are subject to income limits.
- A 6% annual penalty on excess contributions may apply if you exceed the contribution limits.
- While beneficiaries must follow withdrawal rules, account holders are not required to take required minimum distributions (RMDs) during their lifetime.
- Converting a traditional IRA to a Roth IRA can offer long-term tax benefits when done correctly.

Understanding the Differences Between Traditional and Roth IRAs

Before diving into the common mistakes, it's essential to understand the distinctions between a Roth IRA and a traditional IRA. With a Roth IRA, you pay taxes on the money before it is deposited, as contributions are made with after-tax dollars. However, if you meet the conditions of being over 59½ and having held the account for at least five years, both your original contributions and earnings are typically tax-free when you withdraw in retirement.

On the other hand, a traditional IRA allows you to make tax-deductible contributions, but taxes are due when you withdraw funds in retirement. You must also begin withdrawing minimum payments from a traditional IRA at age 73, which will increase to 75 starting in 2033. Unlike traditional IRAs, Roth IRAs have no distribution requirements during the account holder’s lifetime, which is beneficial for asset transfer purposes.

With certain exceptions, including for spouses and minor children, beneficiaries of Roth IRAs are required to withdraw the full balance within ten years after the original account holder’s death, following the SECURE Act of 2020. Understanding these rules is critical for both Cigna employees and their heirs.

1. Not Making Enough Money to Contribute

To contribute to a Roth IRA, Cigna employees must have earned income—like wages or income from self-employment. The contribution limit is based on the amount of money you make each year. Roth IRA contribution limits are generally $7,000 for those under 50 and $8,000 for those 50 and older. Income from dividends, interest, or rental income doesn’t count toward the contribution limit.

If you are married and file jointly, you may also be able to contribute to a non-working spouse’s Roth IRA, as long as the total contributions don’t exceed the combined earned income.

2. Making Too Much Money to Contribute

Your eligibility for a Roth IRA is also determined by your modified adjusted gross income (MAGI). The IRS phases out direct contributions to Roth IRAs once you reach certain income thresholds. These limits are adjusted for inflation each year. The income phase-out ranges for 2025 are:

- $150,000 to $165,000 for single filers and heads of households
- $236,000 to $246,000 for married couples filing jointly
- $0 to $10,000 for married individuals filing separately (if they live with their spouse)

If your income falls within these ranges, your contribution limit may be reduced. If your income exceeds the highest limit, you cannot contribute to a Roth IRA.

3. Failing to Help Your Spouse

Although you can only contribute to a Roth IRA with your own earned income, there is an exception for married couples. If the working spouse earns enough to fund both contributions, they can contribute to a non-working spouse’s Roth IRA. This strategy can be particularly useful for couples looking to increase their retirement savings, potentially doubling their contributions over time.

4. Over-Contributing

If you exceed the Roth IRA contribution limit, a 6% penalty will be charged on the excess contribution until it is corrected. To avoid penalties, withdraw the excess contribution (along with any earnings on it) before you file your tax return.

If you miss the deadline for withdrawal, you can carry the excess contribution forward to the next year’s limit. Staying within the contribution limits helps you take full advantage of your Roth IRA without unnecessary costs.

5. Early Withdrawal of Earnings

Roth IRA contributions are made with after-tax dollars, so you can withdraw your contributions at any time without tax penalties. However, if you withdraw earnings before age 59½ or before the account has been open for at least five years, you may incur a 10% penalty along with income taxes.

There are exceptions to the penalty for certain situations, such as qualified educational expenses or first-time home purchases. While the 10% penalty can be avoided in these cases, income tax may still apply.

6. Violating the Rollover Rules

The IRS has a 60-day limit for rollovers between IRAs. You can only perform one rollover within a 365-day period. Direct transfers between IRAs don’t count toward this limit and are not subject to the same restrictions.

Exceeding the rollover limit can result in tax penalties and, in some cases, the loss of your tax-deferred status. Be sure to follow the rollover rules carefully to avoid penalties.

7. Changing the Money on Your Own

Rollovers can be direct or indirect. A direct rollover involves moving the money directly from one account to another, which eliminates the risk of missing the 60-day deadline.

An indirect rollover requires you to temporarily hold the money before transferring it to the new account. If you don’t deposit the funds within 60 days, you’ll face taxes and penalties.

8. Not Considering a Backdoor Roth IRA

If you make too much money to contribute directly to a Roth IRA, you can still fund one through a strategy known as a 'backdoor Roth IRA.' This involves making non-deductible contributions to a traditional IRA and then converting it to a Roth IRA. Since earnings on the conversion are taxable, it’s important to complete the conversion as quickly as possible to mitigate taxable gains.

For high-income Cigna employees who want to take advantage of Roth IRAs despite income limits, the backdoor Roth IRA may be a valuable option.

9. Ignoring Beneficiary Designations

Beneficiary designation is a critical but often overlooked part of managing a Roth IRA. If beneficiaries are not updated, or if the account holder fails to designate beneficiaries after significant life events such as marriage or divorce, the Roth IRA may have to go through probate. This can delay the transfer of assets and incur additional expenses for your heirs.

Review your beneficiary list regularly and make any necessary changes to help your assets pass smoothly to your intended heirs.

10. Not Withdrawing Inherited Roth Funds

The SECURE Act of 2019 changed the rules for inheriting Roth IRAs. Beneficiaries, excluding spouses, must withdraw the entire balance of the inherited Roth IRA within 10 years. Some exceptions apply, such as for minor children, but this 10-year rule generally applies.

It’s crucial for beneficiaries to understand the withdrawal timeline to avoid tax penalties. Withdrawals are typically tax-free if the account has been open for at least five years.

11. Ignoring the Benefits of a Roth When You Already Have a 401k

Many Cigna employees may be unaware of the benefits of contributing to a Roth IRA in addition to their 401k. While 401k plans often provide employer matching contributions, Roth IRAs offer significant tax-free growth potential and more flexibility in retirement planning.

Contributing to both a 401k and a Roth IRA can help increase retirement savings and provide a diverse range of tax benefits.

In Conclusion

Roth IRAs offer numerous advantages, including tax-free withdrawals, no required minimum distributions during your lifetime, and the ability to transfer assets to heirs with minimal tax impact. However, to fully benefit from these advantages, it’s important to avoid common mistakes like over-contributing, ignoring withdrawal rules, or neglecting to update beneficiary information. By being vigilant about the regulations and actively managing your Roth IRA, you can play a key role in shaping your future.

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Sources:

1. Russell, Rob. '8 Roth IRA Mistakes To Avoid.' Forbes , 30 May 2014, www.forbes.com/sites/robrussell/2014/05/30/8-roth-ira-mistakes-to-avoid/ .

2. Backman, Maurie. '11 Mistakes to Avoid With Your Roth IRA.' Investopedia , 10 Apr. 2015, www.investopedia.com/articles/retirement/041015/11-mistakes-avoid-your-roth-ira.asp .

3. O'Connell, Brian. '10 IRA Mistakes to Avoid.' U.S. News & World Report , 25 Mar. 2025, money.usnews.com/money/retirement/articles/10-ira-mistakes-to-avoid.

4. Schlesinger, Jill. '5 Roth IRA Investments You Should Always Avoid.' Forbes , 24 Apr. 2019, www.forbes.com/sites/jillsschlesinger/2019/04/24/5-roth-ira-investments-you-should-always-avoid/ .

5. Hannon, Kerry. 'How a Roth IRA Conversion Can Help You Pass On More Wealth.' Money , 22 Apr. 2016, money.com/money/retirement/article/how-a-roth-ira-conversion-can-help-you-pass-on-more-wealth/.

As an employee of CIGNA Corporation, what steps should you consider taking to understand the implications of the pension plan amendments established under recent legal interpretations? CIGNA Corporation has experienced significant changes in its pension plan, which resulted from the Amara case. In light of these changes, what should employees examine regarding their accrued benefits, and how might the historical context of these amendments impact their retirement planning?

Employees of CIGNA Corporation should thoroughly review their accrued benefits under the pension plan amendments following the Amara case, which reformed the employer's cash balance plan. It's essential to analyze how these changes affect the value of their pension benefits, especially for employees who joined the company before 1997. Understanding these amendments can significantly impact retirement planning(CIGNA Corporation_May 2…).

In what ways does the concept of ""wear-away"" as discussed in the context of CIGNA Corporation's pension plan amendments affect current employees nearing retirement? Understanding how this mechanism operates within the pension plan can help employees better strategize their retirement. Employees at CIGNA Corporation should analyze whether they could potentially experience delays in benefit accrual as a result of these changes and the legal principles that underpin them.

The "wear-away" concept, introduced in CIGNA’s pension plan amendments, can delay benefit accrual for employees nearing retirement. This mechanism often results in a period where no additional benefits are accrued, which could affect employees' retirement timing. Employees should carefully evaluate whether this delay might affect their pension expectations and strategize accordingly(CIGNA Corporation_May 2…).

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To ensure that CIGNA’s pension plan reflects their rights under ERISA, employees should examine the summary plan descriptions and other relevant documents. Legal rulings like the Amara case can lead to reforms, so employees must clarify how these decisions impact their future benefits(CIGNA Corporation_May 2…).

What resources are available to CIGNA Corporation employees wishing to seek personalized advice regarding their specific retirement scenarios, particularly in light of changes brought about by the Amara case? Understanding the complexities of retirement benefits is crucial, and employees may benefit from tapping into CIGNAâ€™s human resource department or designated benefits counselors for guidance tailored to their circumstances.

Employees seeking personalized advice regarding retirement planning, especially in light of the Amara case, should consult CIGNA’s human resource department or designated benefits counselors. These professionals can provide guidance tailored to individual retirement scenarios, ensuring a clear understanding of pension and 401(k) options(CIGNA Corporation_May 2…).

How does the restructuring of the CIGNA Corporation's pension and 401(k) plans impact the overall retirement benefits landscape for employees who joined before and after the 1997 changes? Employees should look at the comparative advantages and disadvantages provided by both plans to make informed decisions regarding their retirement savings strategies and expected outcomes.

CIGNA employees who joined before and after 1997 should analyze the restructuring of the pension and 401(k) plans. The changes led to different retirement benefits, with cash balance plans affecting post-1997 employees. Comparing both plans’ advantages and disadvantages is crucial for making informed decisions about savings and retirement strategies(CIGNA Corporation_May 2…).

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Employees should understand how interest rate fluctuations impact the valuation of their pension benefits, especially those affected by the 1998 changes. Interest rate assumptions play a crucial role in determining the value of cash balance pensions, and employees must stay informed about these variables(CIGNA Corporation_May 2…).

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What specific changes in eligibility criteria for early retirement benefits should current CIGNA Corporation employees be aware of, especially regarding the transition to the cash balance plan? Employees need to scrutinize the implications of these changes and how they may affect their decisions about early retirement and associated benefits.

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CIGNA employees can reach out to the HR department or benefits specialists for more information on their retirement options. These channels provide crucial insights into pension plan amendments and can clarify how the Amara case and other legal changes affect employees’ retirement benefits(CIGNA Corporation_May 2…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

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