It is imperative for individuals to be aware of new changes made by the IRS. The main factors that will likely affect corporate employees would be:
- The 2024 standard deduction will increase to $14,600 for single filers and those married filing separately, $29,200 for joint filers, and $21,900 for heads of household.
- Taxpayers who are over the age of 65 or blind can add an additional $1,550 to their standard deduction. That amount jumps to $1,950 if also unmarried or not a surviving spouse.
The personal exemption for tax year 2024 remains at zero, as it was for 2023. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
Remote workers employed by a corporate company might face double taxation on state taxes. Due to the pandemic, many employees moved back home which could have been outside of the state where they were employed. Last year, some states had temporary relief provisions to avoid double taxation of income, but many of those provisions have expired. There are only six states that currently have a ‘special convenience of employer’ rule: Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania. If you work remotely for a corporate company, and if you don't currently reside in those states, consult with your tax advisor if there are other ways to mitigate the double taxation.
Retirement account contributions: Contributing to your company's Thrift Plan can cut your tax bill significantly, and the amount you can save has increased for 2024. The amount individuals can contribute to their Thrift Plan in 2024 will increase to $23,000 -- up from $22,500 for 2023. The income ranges for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs, and claim the Saver's Credit will also all increase for 2024. The catch-up contribution limit for employees age 50 and over will increase to $7,500.
There are important changes for the Earned Income Tax Credit (EITC) that you, as a taxpayer employed by a corporation, should know:
- The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, up from $7,430 for tax year 2023.
- Married taxpayers filing separately can qualify: You can claim the EITC as a married filing separately if you meet other qualifications. This wasn't available in previous years.
Deduction for cash charitable contributions: The special deduction that allowed single nonitemizers to deduct up to $300—and married filing jointly couples to deduct $600— in cash donations to qualifying charities has expired.
Child Tax Credit changes:
- The maximum tax credit per qualifying child is $2,000. Additionally, you can't receive a portion of the credit in advance, as was the case in 2023.
- As a parent or guardian, you are eligible for the Child Tax Credit if your adjusted gross income is less than $200,000 when filing individually or less than $400,000 if you're filing a joint return with a spouse.
- An 80 percent, partial refundability affecting individuals whose tax bill falls below the credit amount.
2024 Tax Brackets
Inflation reduces purchasing power over time as the same basket of goods will cost more as prices rise. In order to maintain the same standard of living throughout your retirement after leaving your company, you will have to factor rising costs into your plan. While the Federal Reserve strives to achieve a 2% inflation rate each year, in 2023 that rate shot up to 4.9%, a drastic increase from 2020’s 1.4%. While prices as a whole have risen dramatically, there are specific areas to pay attention to if you are nearing or in retirement from your company, like healthcare. Many corporate retirees depend on Medicare as their main health care provider and in 2023 that healthcare out-of-pocket premium is set to increase between 5 - 14%. In addition to Medicare increases, the cost of over-the-counter medications is also projected to increase by at least 7%. The Employee Benefit Research Institute (ERBI) found in their 2022 report that couples with average drug expenses would need $296,000 in savings just to cover those expenses in retirement. It is crucial to take all of these factors into consideration when constructing your holistic plan for retirement from your company.
*Source: IRS.gov, Yahoo, Bankrate, Forbes
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Source: Is it Worth the Money to Hire a Financial Advisor? The Balance, 2021
Starting to save as early as possible matters. Time on your side means compounding can have significant impacts on your future savings. And, once you’ve started, continuing to increase and maximize your contributions for your Thrift Plan is key.
The Retirement Plan of Marathon
The Retirement Plan of Marathon Oil Company is one of the key components of your overall retirement income, so you’ll want to have a clear understanding of how the plan pays benefits and the options available to you.
In general, you are eligible for benefits under the Retirement Plan provided you are at least age 50 and have 10 or more years of vesting service. However, note that all employees with at least three years of vesting service have a vested benefit in the Retirement Plan. The value of this benefit, however, can vary based on your employment history including, but not limited to, your age, years of service with the Company, and your pay.
Retirement benefit payments will commence approximately 5 weeks from your benefit commencement date. This timing ensures that all of your pay can be appropriately included in the calculation of your final benefit.
The Legacy Formula of the Retirement Plan
You still will be eligible to receive a pension benefit under the Legacy Formula of the Retirement Plan of Marathon Oil. However, the compensation factor used to calculate your Legacy Formula benefit was frozen as of July 6, 2015. This means your final average pay and the offset for your estimated primary Social Security benefit used to calculate your retirement benefit will not increase after this date.
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The Retirement Plan is funded by the Company — you do not make contributions toward this benefit.
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Your retirement benefit is made up of your Legacy Formula benefit and your Cash Balance Formula benefit.
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Your Legacy Formula benefit is expressed as a monthly annuity at age 65. The lump sum form of benefit will continue.
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You will be able to grow into the early retirement subsidy factors (i.e., age 50 increase) under the Legacy Formula benefit if you reach age 50 and complete 10 years of vesting service.
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The Cash Balance Formula is not changing — you will continue to earn additional pay and interest credits.
Marathon Oil continually evaluates the benefits they offer while balancing the needs of the business. They decided to freeze final average pay in the Legacy Formula of the Retirement Plan as part of an overall effort to align their cost structure competitively.
This change allows the Company to recognize cost savings while still providing competitive retirement benefits. Since not all employees were eligible for the Legacy Formula, it also creates greater consistency among the workforce moving forward.
These changes apply to active employees with a benefit under The Legacy Formula of the Retirement Plan. This group includes employees who began working for Marathon Oil before 2010 and who have remained in continuous employment.
Employees who were first hired or who were re-hired in 2010 or later, former employees, and current active employees who leave the company before July 6, 2015, will not be affected.
The Cash Balance Formula
The plan benefit is based on employment and pay after 2009, which is calculated as a lump sum amount, based on annual Pay Credits and monthly Interest Credits. Pay Credits: Under the cash balance formula, Active Members receive annual Pay Credits equal to a percentage of Adjusted Gross Pay based on their plan points.
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Points equal a participant’s age plus years of Cash Balance service.
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Participants with less than 50 points receive a 7% pay credit.
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Participants with 50 – 69 points receive a 9% pay credit.
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Participants with 70 or more points receive a 11% pay credit.
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Pay credits are added to each participant’s Cash Balance after the end of the year.
Interest Credits: For each calendar month after 2009, an Interest Credit will be added to the participant’s Cash Balance Retirement Benefit. The interest crediting rate is the greater of 3% or the average annual rate of interest on 30-year Treasury securities (which is set each January 1 based on the rates in effect for the preceding August, September, and October).
This Interest Credit is calculated by multiplying your cash balance as of the first day of the month times one-twelfth of the interest credit rate in effect for the year.
Combined Retirement Benefit If you provided service for a Participating Employer both before January 1, 2010, and after December 31, 2009, and were eligible to participate during both time periods, you are entitled to a Combined Retirement Benefit. This means that your retirement benefit will be the sum of your Cash Balance Retirement Benefit, if any, and your Legacy Retirement Benefit, if any. Your Legacy Retirement Benefit is discounted to a lump sum and added to your Cash Balance Retirement Benefit if you elect to receive a lump sum. If you choose to receive a monthly pension form of benefit payment, your Cash Balance Retirement Benefit is converted to a monthly benefit amount and added to your monthly Legacy Retirement Benefit.
Calculating the Legacy Formula Benefit
Prior to July 6, 2015, your Legacy Formula benefit is determined under the following formula:
[1.6% x Final Average Pay x Years of Participation] –
[1.33% x Estimated Primary Social Security Benefit x Years of Participation]
After the changes take effect, final average pay will be calculated the same way, but no pay after July 5, 2015, will be included. As a result, your final average pay as of July 6, 2015, will be your final average pay for the purposes of calculating your benefit — it will not increase with future salary increases or bonuses. Beginning July 6, 2015, your Legacy Formula benefit will be calculated based on your:
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Years of participation: frozen December 31, 2009
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Final average pay: frozen as of July 6, 2015 (then no additional pay considered)
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Estimated primary Social Security benefit: frozen as of July 6, 2015 (freezes benefit calculation before applying the early retirement factors used for the age 50 increase)
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Age at retirement or separation from employment
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Offset benefit: from employment with acquired companies
Other Details
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Final average pay uses the highest consecutive 36-month period during the 120-month period ending on July 5, 2015. It includes salary and up to three bonuses, but does not include income from restricted stock vesting or other additional bonuses.
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Age factors for purposes of early retirement will not be frozen as of July 6, 2015, and will continue to adjust your monthly retirement benefit until you reach age 62, when you will be eligible for an unreduced benefit under the Legacy Formula. If you are retirement-eligible, there are no further reductions to your monthly retirement benefit based on age beginning at age 62.
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If you are not yet age 50 with 10 years of vesting service, you will be able to grow into the eligibility for the early retirement reduction factors and experience the more favorable factors that apply if you retire after you reach age 50 and complete 10 years of vesting service.
What Distribution Options are Available?
When deciding on a distribution option, it’s important to look at your overall financial situation. As part of this process, you may want to consult with your spouse if you’re married (in fact, some payment options require your spouse’s consent), as well as a financial planner or tax advisor.
The Retirement Plan offers several distribution options. In summary, the payment options are:
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Lump Sum Benefit: You may elect to receive the entire benefit as a single payment.
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Lifetime Annuity Benefits: You may elect to receive a monthly benefit for your lifetime. This benefit would end upon your death.
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Joint & Survivor (J&S) Benefit: You may elect to receive a J&S Benefit with your spouse as joint annuitant. You would receive a reduced monthly benefit during your lifetime, and a percentage would be paid as a monthly payment to your surviving spouse for his or her remaining lifetime upon your death.
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Term Certain Benefit: You may elect to receive a reduced monthly benefit during your lifetime. Monthly payments are guaranteed for a certain term, and any remaining payments would be paid to your beneficiary upon your death.
Early Retirement Penalty Table for Marathon Legacy Pension Plan
Below is a table showing the reduction in the monthly Legacy Retirement Benefit for each year an employee retires before age 62, based on the reduction rates specified by Marathon:
|
Age at Retirement |
Reduction Percentage |
Calculation |
Monthly Benefit (% of Full) |
|
62 |
0% |
Full Benefit |
100% |
|
61 |
3% |
100% - (1 * 3%) |
97% |
|
60 |
6% |
100% - (2 * 3%) |
94% |
|
59 |
9% |
100% - (3 * 3%) |
91% |
|
58 |
13% |
100% - (3 * 3% + 1 * 4%) |
87% |
|
57 |
17% |
100% - (3 * 3% + 2 * 4%) |
83% |
|
56 |
21% |
100% - (3 * 3% + 3 * 4%) |
79% |
|
55 |
25% |
100% - (3 * 3% + 4 * 4%) |
75% |
|
54 |
29% |
100% - (3 * 3% + 5 * 4%) |
71% |
|
53 |
33% |
100% - (3 * 3% + 6 * 4%) |
67% |
|
52 |
37% |
100% - (3 * 3% + 7 * 4%) |
63% |
|
51 |
41% |
100% - (3 * 3% + 8 * 4%) |
59% |
|
50 |
45% |
100% - (3 * 3% + 9 * 4%) |
55% |
Explanation:
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Ages 61-59: The pension benefit is reduced by 3% per year for each year retirement is taken before age 62.
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Ages 58-50: The pension benefit is reduced by an additional 4% per year for each year retirement is taken before age 59.
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If you retire and start your Plan benefit after age 62, there is no reduction in your monthly Legacy Retirement Benefit.
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If you retire and start your Plan Benefit before age 62, your monthly Legacy Retirement Benefit is reduced by 3% for each year before age 62 to age 59, and by 4% for each year below age 59 to age 50. For example, if you retire at age 50 with ten or more years of Vesting Service, you can choose to start monthly payments of your Legacy Retirement Benefit at 55% of the amount of that benefit determined at Normal Retirement Age as explained above. (Additional adjustments to the monthly payment may be made if you elect a benefit with a survivor feature, explained below.)".
Benefits of Working an Additional Year
Depending on your personal situation, it might “pay to delay” your retirement from one to several years, based on the following considerations:
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Lower retiree Health Program contributions (if you are eligible): You receive 4% of the Company subsidy toward your retiree Health Program contribution for every year of service after your 30th birthday. If you have not yet earned 100% of the Company subsidy, retiring now could potentially cost you thousands of dollars in retiree Health Program contributions over time.
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Continued 7% Company match in the Thrift Plan.
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Potential growth of benefit in the Retirement Plan.
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Future vesting of previously granted long-term incentive awards (such as restricted stock).
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Potential for future bonus. While retirement is a life decision that involves many important considerations, Marathon Oil wants to ensure you’re getting the most value from our benefit programs when you leave the Company.
Over half of plan participants admit they don’t have the time, interest or knowledge needed to manage their Thrift Plan portfolio. But the benefits of getting help goes beyond convenience. Studies like this one, from Charles Schwab, show those plan participants who get help with their investments tend to have portfolios that perform better: The annual performance gap between those who get help and those who do not is 3.32% net of fees. This means a 45-year-old participant could see a 79% boost in wealth by age 65 simply by contacting an advisor. That’s a pretty big difference.
Getting help can be the key to better results across the Thrift Plan board.
A Charles Schwab study found several positive outcomes common to those using independent professional advice. They include:
- Improved savings rates – 70% of participants who used Thrift Plan's advice increased their contributions.
- Increased diversification – Participants who managed their own portfolios invested in an average of just under four asset classes, while participants in advice-based portfolios invested in a minimum of eight asset classes.
- Increased likelihood of staying the course – Getting advice increased the chances of participants staying true to their investment objectives, making them less reactive during volatile market conditions and more likely to remain in their original Thrift Plan investments during a downturn. Don’t try to do it alone.
Get help with your company's Thrift Plan investments. Your nest egg will thank you.
Net Unrealized Appreciation (NUA)
When you qualify for a distribution, you have three options:
- Roll-over your qualified plan to an IRA and continue deferring taxes.
- Take a distribution and pay ordinary income tax on the full amount.
- Take advantage of NUA and reap the benefits of a more favorable tax structure on gains.
How does Net Unrealized Appreciation work?
First an employee must be eligible for a distribution from their qualified company-sponsored plan. Generally, at retirement or age 59 1⁄2, the employee takes a 'lump-sum' distribution from the plan, distributing all assets from the plan during a 1-year period. The portion of the plan that is made up of mutual funds and other investments can be rolled into an IRA for further tax deferral. The highly appreciated company stock is then transferred to a non-retirement account.
The tax benefit comes when you transfer the company stock from a tax-deferred account to a taxable account. At this time, you apply NUA and you incur an ordinary income tax liability on only the cost basis of your stock. The appreciated value of the stock above its basis is not taxed at the higher ordinary income tax but at the lower long-term capital gains rate, currently 15%. This could mean a potential savings of over 30%.
As a corporate employee, you may be interested in understanding NUA from a financial advisor.
IRA Withdrawal
When you qualify for a distribution, you have three options:
Your retirement assets may consist of several retirement accounts: IRAs, Thrift Plan's, taxable accounts, and others.
So, what is the most efficient way to take your retirement income after leaving your company?
You may want to consider meeting your income needs in retirement by first drawing down taxable accounts rather than tax-deferred accounts.
This may help your retirement assets with your company last longer as they continue to potentially grow tax deferred.
You will also need to plan to take the required minimum distributions (RMDs) from any company-sponsored retirement plans and traditional or rollover IRA accounts.
That is due to IRS requirements for 2024 to begin taking distributions from these types of accounts when you reach age 73. Beginning in 2023, the excise tax for every dollar of your RMD under-distributed is reduced from 50% to 25%.
There is new legislation that allows account owners to delay taking their first RMD until April 1 following the later of the calendar year they reach age 73 or, in a workplace retirement plan, retire.
Two flexible distribution options for your IRA
When you need to draw on your IRA for income or take your RMDs, you have a few choices. Regardless of what you choose, IRA distributions are subject to income taxes and may be subject to penalties and other conditions if you’re under 59½.
Partial withdrawals: Withdraw any amount from your IRA at any time. If you’re 73 or over, you’ll have to take at least enough from one or more IRAs to meet your annual RMD.
Systematic withdrawal plans: Structure regular, automatic withdrawals from your IRA by choosing the amount and frequency to meet your income needs after retiring from your company. If you’re under 59½, you may be subject to a 10% early withdrawal penalty (unless your withdrawal plan meets Code Section 72(t) rules).
Your tax advisor can help you understand distribution options, determine RMD requirements, calculate RMDs, and set up a systematic withdrawal plan.
You and your Medicare-eligible dependents must enroll in Medicare Parts A and B when you first become eligible. Medical and MH/SA benefits payable under the company's-sponsored plan will be reduced by the amounts Medicare Parts A and B would have paid whether you actually enroll in them or not.
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