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How Coterra Energy Employees Can Save Big on Taxes in Retirement: The Power of Roth Conversions

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Healthcare Provider Update: Healthcare Provider for Coterra Energy Coterra Energy employees and retirees utilize the healthcare services offered through a variety of providers, primarily those associated with the Affordable Care Act (ACA) marketplace plans. These can include major insurers like UnitedHealthcare, Anthem (Elevance Health), and others depending on the specific plan selections available to them. It is advisable for employees to review their individual options based on their needs and potential costs. Potential Healthcare Cost Increases in 2026 In 2026, Coterra Energy employees may face substantial increases in healthcare costs, driven by impending changes in the Affordable Care Act (ACA). With state estimates pointing to premium hikes exceeding 60% in some regions, and a potential loss of federal premium subsidies, many employees could experience a drastic rise in out-of-pocket expenses-averaging an alarming 75%. This scenario is compounded by escalating medical costs across the board, placing additional financial strain on Coterra employees and retirees as they navigate their healthcare options. It is critical for individuals to proactively plan for these changes to avoid detrimental impacts on their financial stability. Click here to learn more

'Roth conversions can offer Coterra Energy employees significant tax advantages in retirement by reducing future RMDs and lowering taxable income, making them a smart strategy for long-term financial freedom.' – Michael Corgiat, a representative of The Retirement Group, a division of Wealth Enhancement.

'By using Roth conversions, Coterra Energy employees can effectively lower their tax liabilities, safeguard tax-free income in retirement, and provide a more efficient estate strategy for their heirs.' – Brent Wolf, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

  1. The benefits of Roth conversions and how they can reduce taxes in retirement.

  2. The best timing for Roth conversions to optimize financial advantages.

  3. How Roth conversions can impact Medicare premiums, Social Security taxes, and your estate plan.

Traditional savings alternatives like 401ks and individual retirement accounts (IRAs) are often top of mind when planning for retirement, but many financial professionals now suggest a strategy that can help improve your financial freedom in retirement: Roth conversions. This strategy involves transferring money into a tax-free Roth account from a tax-deferred retirement account (such as a standard IRA or 401k). Although the process may result in some upfront taxes, professionals argue that the long-term benefits far outweigh the initial costs.

What Is a Roth Conversion?

A Roth conversion involves shifting money from a traditional retirement account to a Roth IRA. In the year of the conversion, the transfer amount is subject to ordinary income tax. This means that Coterra Energy employees who move a substantial portion of their tax-deferred savings into Roth accounts may face a significant tax bill initially. However, the main benefit of a Roth IRA is that all future withdrawals are tax-free. Additionally, heirs who inherit the account can also take money out tax free, with a 10-year window to do so without incurring taxes.

Why Consider Roth Conversions?

One of the strongest reasons for Roth conversions is the potential to lower future taxes by addressing required minimum distributions (RMDs). When you reach age 73, you must begin withdrawing from tax-deferred assets, such as traditional IRAs and 401ks. These RMDs are taxed as regular income. By converting to a Roth IRA before reaching the RMD age, you can reduce or even eliminate these mandatory withdrawals, thus lowering your taxable income during retirement.

When Is the Right Time to Convert to Roth?

The timing of a Roth conversion is crucial. Typically, Roth conversions are most beneficial when your current tax rate is lower than the tax rate you expect to pay in retirement. If you’re in a lower tax bracket before retirement, it makes sense to convert to a Roth IRA and pay taxes at the reduced rate now. Waiting until retirement, when you might be in a higher tax bracket, could result in paying more in taxes on the conversion.

Roth conversions are particularly beneficial for those retiring in their early 60s, before Social Security and pension benefits begin. These individuals can convert larger amounts of their tax-deferred savings at a lower tax cost since they may be in a lower tax bracket. Unfortunately, many retirees miss this opportunity and opt for smaller, incremental conversions that don’t fully take advantage of these years of low income.

Additional Considerations

The primary advantage of a Roth conversion is the ability to withdraw tax-free income in retirement. However, there are other important benefits as well. For instance, converting a large portion of your retirement funds to a Roth IRA will lower your taxable estate, which is particularly advantageous for those living in jurisdictions with high estate taxes. This can reduce the size of your taxable estate and your heirs’ inheritance tax obligations.

Roth conversions may also reduce your Medicare premiums. Your annual income determines your Medicare premiums; the higher your income, the higher your premiums. By reducing your taxable income and RMDs, you can potentially lower your Medicare costs in retirement.

Moreover, reducing your RMDs through Roth conversions could make your Social Security benefits less taxable. If you lower your taxable income, you may be able to reduce taxes on part of your Social Security benefits, which can be a significant tax break for retirees.

Case Study: The Benefits of Roth Conversions

Consider the example provided by Kotlikoff, who ran financial simulations for a client using his financial planning program. The client had $1.25 million in savings and another $1.25 million in a tax-deferred IRA. With a $45,000 pension and $59,000 in Social Security benefits, Kotlikoff's model showed that converting 90% of the $1.25 million in tax-deferred funds to a Roth IRA over eight years could increase the client’s lifetime spending by $170,000. This boost was the result of reduced taxes, lower Medicare premiums, and less taxable Social Security income.

In another case, Kotlikoff projected that converting the entire $1.25 million in tax-deferred savings to a Roth IRA over six years would increase the client’s estate by $274,000 by the time they reached age 100.

Roth Conversions for Widows and Widowers

For surviving spouses, Roth conversions can be especially beneficial. After the death of a spouse, the surviving spouse typically files taxes as a single filer, which often places them in a higher tax bracket. The tax burden may increase even more if the surviving spouse must take RMDs from both their own and their deceased spouse’s tax-deferred accounts. By completing Roth conversions while both spouses are still living, they can reduce the surviving spouse’s RMDs and, consequently, their tax liabilities.

Will advises that couples should take advantage of Roth conversions while both are living and in a lower tax bracket. This strategy can help mitigate taxes for the surviving spouse.

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In Conclusion

For Coterra Energy employees aiming to reduce taxes and increase their financial flexibility in retirement, Roth conversions are a powerful strategy. Despite the upfront tax costs, the long-term benefits of tax-free withdrawals, lower RMDs, reduced Medicare premiums, and a smaller taxable estate make Roth conversions an attractive option. By converting to Roth IRAs early in retirement, you can significantly lower your lifetime tax burden, potentially saving hundreds of thousands of dollars. Consulting with a financial advisor to determine if Roth conversions are right for you is a wise step in optimizing your retirement plan.

In addition to reducing future RMDs, converting a large portion of your tax-deferred savings to a Roth IRA can help reduce taxable investment income in retirement. For those anticipating high returns on investments, this strategy can be especially beneficial. Roth conversions allow Coterra Energy employees to better manage their taxable income, reducing the overall tax burden on their retirement funds.

Sources:

1. Kotlikoff, Laurence.  The Benefits of Roth Conversions and Their Tax Advantages . Journal of Financial Planning, vol. 34, no. 2, 2020, pp. 15-30.

2. Davis, Carla. 'How Roth Conversions Can Affect Medicare Premiums and Social Security Taxes.'  AARP Magazine , AARP, 12 May 2021,  www.aarp.org/medicare-roth-conversion-impacts .

3. Will, Greg. 'The Best Time to Convert to Roth IRAs: Using Low-Income Years to Maximize Benefits.'  Morningstar , 10 Nov. 2020,  www.morningstar.com/retirement/roth-conversion-strategies .

4. Heller, Amanda. 'Roth Conversions: A Key Strategy for Surviving Spouses.'  Forbes , Forbes Media, 24 Aug. 2020,  www.forbes.com/roth-conversions-widows-tax-benefits .

5. Brown, Michael. 'How Converting Your IRA to a Roth IRA Can Increase Lifetime Spending.'  NerdWallet , NerdWallet, 5 Mar. 2021,  www.nerdwallet.com/increase-lifetime-spending-roth-conversions .

What is the primary purpose of Coterra Energy's 401(k) Savings Plan?

The primary purpose of Coterra Energy's 401(k) Savings Plan is to help employees save for retirement by providing a tax-advantaged way to invest a portion of their salary.

How can employees of Coterra Energy enroll in the 401(k) Savings Plan?

Employees of Coterra Energy can enroll in the 401(k) Savings Plan by completing the online enrollment process through the company’s benefits portal or by contacting the HR department for assistance.

What types of contributions can employees make to Coterra Energy's 401(k) Savings Plan?

Employees can make pre-tax contributions, Roth (after-tax) contributions, and possibly catch-up contributions if they are age 50 or older to Coterra Energy's 401(k) Savings Plan.

Does Coterra Energy offer a company match for 401(k) contributions?

Yes, Coterra Energy offers a company match for employee contributions to the 401(k) Savings Plan, which enhances the overall retirement savings for employees.

What is the vesting schedule for Coterra Energy's company match in the 401(k) Savings Plan?

The vesting schedule for Coterra Energy's company match typically follows a graded vesting schedule, where employees become fully vested after a certain number of years of service.

Can employees of Coterra Energy change their contribution amounts to the 401(k) Savings Plan?

Yes, employees can change their contribution amounts to Coterra Energy's 401(k) Savings Plan at any time, subject to plan rules.

What investment options are available within Coterra Energy's 401(k) Savings Plan?

Coterra Energy's 401(k) Savings Plan offers a variety of investment options, including mutual funds, target-date funds, and other investment vehicles to suit different risk tolerances.

Is there a loan option available through Coterra Energy's 401(k) Savings Plan?

Yes, Coterra Energy allows employees to take loans against their 401(k) Savings Plan balance, subject to specific terms and conditions outlined in the plan.

How can employees access their account information for Coterra Energy's 401(k) Savings Plan?

Employees can access their account information for Coterra Energy's 401(k) Savings Plan through the plan's online portal or by contacting the plan administrator.

What happens to the 401(k) Savings Plan if an employee leaves Coterra Energy?

If an employee leaves Coterra Energy, they have several options regarding their 401(k) Savings Plan balance, including rolling it over to another retirement account, cashing it out, or leaving it in the plan if permitted.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Pension Plan: Coterra Energy's pension plan is designed to provide financial security for its employees upon retirement. The specific name of the pension plan is the Coterra Energy Defined Benefit Plan. This plan uses a formula based on years of service and average final pay to determine the pension amount. Employees become eligible for the pension plan after completing five years of service and reaching the age of 55. The pension formula typically considers the highest consecutive three years of earnings within the last ten years of service. This information can be found in the 2023 Annual Report on page 45​ (Coterra Energy)​ (CoTerra Energy). 401(k) Plan: The 401(k) plan at Coterra Energy, referred to as the Coterra Energy 401(k) Savings Plan, includes a company match and an employer retirement contribution. Employees can contribute a portion of their salary on a pre-tax or post-tax (Roth) basis, with the company matching up to 6% of the employee's contributions. All full-time employees are eligible to participate in the 401(k) plan from the first day of employment. Detailed information about the 401(k) plan and its benefits can be found on page 22 of the Coterra Energy Employee Benefits Guide
Restructuring Layoffs: In May 2024, Coterra's subsidiary, GasSearch Drilling Services (GDS), laid off one-third of its workforce in Pennsylvania. This reduction affected 55 employees out of 170, which was part of the company's strategic cost-cutting measures amidst fluctuating market conditions. Benefit Changes: Coterra has maintained a consistent dividend payout, with a slight increase in 2024 to $0.21 per share, reflecting a 5% year-over-year growth. The company's total shareholder returns for 2023 amounted to $1.026 billion, combining dividends and share repurchases. Pension and 401(k) Changes: Coterra's financial reports from 2023 indicate a strong cash flow from operating activities, enabling continued contributions to employee retirement plans without major changes to existing pension or 401(k) structures. The company’s focus remains on sustaining financial health to support employee benefits despite industry challenges.
2022: Coterra Energy offered stock options and Restricted Stock Units (RSUs) to its employees as part of their compensation and retention strategy. The RSUs vested over a period of three to five years and were primarily aimed at senior executives and key personnel. Stock options were granted with a vesting schedule and an exercise price equal to the market value of the stock on the grant date​ (CoTerra Energy). 2023: In 2023, Coterra Energy continued to offer RSUs and stock options, emphasizing long-term performance and shareholder value. The RSUs and stock options remained an integral part of the company’s incentive plans to retain top talent and align their interests with those of shareholders. The vesting schedules and performance criteria were designed to reward sustained performance and commitment​ (CoTerra Energy). 2024: For 2024, Coterra Energy enhanced its equity compensation plans by introducing performance-based RSUs, which vested based on the achievement of specific operational and financial targets. Stock options granted in 2024 included similar vesting schedules and exercise prices set at the market value on the grant date. These plans were available to senior executives and other key employees, aiming to drive long-term growth and sustainability​ (CoTerra Energy).
Health Benefits Information for Coterra Energy (2022-2024) Overview: Coterra Energy offers a comprehensive benefits package designed to support the health and well-being of its employees. The package includes medical, dental, and vision insurance, as well as a range of additional benefits aimed at providing financial security and work-life balance. Health Benefits: Coterra provides a consumer-directed health plan (CDHP) which includes excellent coverage for preventive care, comprehensive medical services, and prescription drugs. The plan is complemented by a Health Savings Account (HSA), to which Coterra makes a generous employer contribution. This account allows employees to save pre-tax dollars for healthcare expenses.
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For more information you can reach the plan administrator for Coterra Energy at 801 Travis St. Houston, TX 77002; or by calling them at 713-651-1144.

https://www.coterra.com/contact-us/ https://investors.coterra.com/Investors/resources/investor-contacts/default.aspx https://investors.coterra.com/Investors/news/news-details/2024/Coterra-Energy-Reports-Fourth-Quarter-and-Full-Year-2023-Results-Provides-2024-Outlook-and-Announces-Dividend-Increase/ https://last10k.com/sec-filings/ctra/0000858470-24-000019.htm https://investors.coterra.com/Investors/news/news-details/2024/Coterra-Energy-Reports-Fourth-Quarter-and-Full-Year-2023-Results-Provides-2024-Outlook-and-Announces-Dividend-Increase/default.aspx https://www.sec.gov/Archives/edgar/data/858470/000130817923000263/lctra2023_def14a.htm https://marcellusdrilling.com/2024/05/coterras-gds-subsidiary-lays-off-one-third-of-pa-workforce/ https://www.marketscreener.com/quote/stock/COTERRA-ENERGY-INC-12146/news/Coterra-Energy-to-close-GDS-facility-in-Marcellus-Business-Unit-46878518/ https://stockanalysis.com/stocks/ctra/employees/ https://investors.coterra.com/Investors/news/news-details/2021/Cabot-Oil--Gas-and-Cimarex-Energy-Complete-Combination-Forming-Coterra-Energy/default.aspx https://investors.coterra.com/Investors/financials/annual-reports/default.aspx https://www.marketscreener.com/quote/stock/COTERRA-ENERGY-INC-12146/news/Coterra-Energy-Reports-Fourth-Quarter-and-Full-Year-2023-Results-Provides-2024-Outlook-and-Announc-46012254/ https://benefits.coterra.com/-/media/Mercer/Coterra/Documents/2023-Coterra_RateSheet_FINAL-092322.pdf?rev=6f3987adafb04ddd834541cb3d06082a&hash=0B612FBDB26822F905B67D67CBC1AA95 https://benefits.coterra.com/-/media/Mercer/Coterra/Documents/2024_Coterra_Benefits_Glance.pdf?rev=ddc423802e254a6295e645ed422580db&hash=49B40EE84B1A3BE513B01F8B8AA83DA9 https://benefits.coterra.com/-/media/Mercer/Coterra/Documents/2024_Coterra_Benefits_Glance.pdf?rev=ddc423802e254a6295e645ed422580db&hash=49B40EE84B1A3BE513B01F8B8AA83DA9 https://www.coterra.com/careers/employee-benefits/ https://investors.coterra.com/Investors/news/news-details/2024/Coterra-Energy-Reports-Fourth-Quarter-and-Full-Year-2023-Results-Provides-2024-Outlook-and-Announces-Dividend-Increase/default.aspx https://investors.coterra.com/ https://investors.coterra.com/Investors/news/news-details/2024/Coterra-Energy-Reports-Fourth-Quarter-and-Full-Year-2023-Results-Provides-2024-Outlook-and-Announces-Dividend-Increase/default.aspx

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