Should I Use My 2022 Roth IRA Contribution to Buy Amazon Stock? | Smart Change: Personal Finance

(Charlene Reinhart, CPA)

shares Amazon (NASDAQ: AMZN) It fell after the company released its first-quarter earnings report last month. Recently, the company’s stock plunged to a 52-week low and lost almost all of the gains accumulated during the pandemic.

While some investors may be concerned about the future of Amazon’s stock, there are others standing on the sidelines willing to buy. Amazon announced plans for a 20-for-1 stock split in March, and many investors were waiting to jump in to collect their additional shares. Current stock prices make the stock more attractive to those who see Amazon as a potential investment opportunity.

If you’re considering adding Amazon stock to a retirement portfolio, there are a few things you should consider before hitting the buy button. We’ll explore the pros and cons of a Roth IRA and give you some pointers to determine if Amazon deserves a place in your portfolio.

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What you should know about Amazon

The recent headlines about Amazon may be all about you. Let’s take a step back and take a look at some numbers, as well as what lies ahead in the tech giant’s world.

Amazon’s Q1 2022 earnings call was made on April 28, and the company’s stock has taken a hit in response. The company reported a net loss of $3.8 billion for the quarter. This includes a $7.6 billion loss in Amazon’s stake in the electric car maker Rivian. On the flip side, Amazon Web Services (AWS) is driving the company’s profits, with $18.44 billion in revenue. This is a 37% increase year over year.

Let’s not forget the Amazon stock split. On March 9, Amazon revealed plans for a 20-for-1 stock split, and the stock soared. Now the stock is dancing around its lowest levels since the pandemic, and a stock split may be around the corner.

Here are some important dates to be aware of if you’re interested in following the Amazon stock split:

  • May 25, 2022: The Amazon 2022 annual shareholder meeting will be held. Shareholders will vote on a 20-to-1 stock split.
  • May 27, 2022: If shareholders agree to a stock split, all shareholders registered by that date will receive an additional 19 shares for every single Amazon share in their account.
  • June 3, 2022: The shares will be divided.
  • June 6, 2022: Amazon stock will be traded on a split rate basis. More people will have the opportunity to purchase entire shares of Amazon for approximately 1/20 of its previously quoted price. If Amazon stock traded at $2,000 per share before the split, the entire Amazon stock would be around $100 on June 6.

Don’t let the idea of ​​a stock split fool you: It’s more of a cosmetic transformation. The company is chopping existing shares into bite-size chunks. Although you will have more shares in your account after the stock split, the value of your shares will remain the same.

Does Amazon make sense in your Roth IRA?

A Roth IRA (Individual Retirement Account) is a tempting proposition for people who expect to be in a higher tax bracket in the future. Instead of paying your tax bill later, you can contribute your after-tax dollars to a Roth IRA today, as long as you meet the income requirements.

Once the money is in your Roth IRA, your contributions can grow tax-free. Then, after you reach 59 1/2 and meet the five-year rule requirements, you can withdraw your money 100% tax-free.

Although a Roth IRA is popular with retirement accounts, there are some drawbacks to consider. For starters, the contribution limits are not as high as what you might see on other accounts. If you’re under 50, you can only contribute up to $6,000 to a Roth IRA in 2022. If you buy Amazon at a four-figure share price and only have $6,000 in a Roth IRA, buying Amazon stock could spoil your diversification goals your. It’s best to target a good variety of assets to help you reduce the risk in your retirement accounts.

Roth IRA is not the only way to invest in Amazon

There are alternative ways to invest in Amazon shares without holding your money for a certain period of time.

You can enjoy more flexibility with a taxable brokerage account. This account allows you to touch your money whenever you want. However, it may be best to wait at least a year before selling if you want to take advantage of long-term capital gain rates.

Evaluate your situation to determine the best strategy

It is important to assess your overall financial situation and goals to determine the best accounts for your assets. It is also important to do your research on the companies you want to invest in before hitting the buy button. By doing your due diligence and researching up front, you can choose the best investments and accounts that match your desired lifestyle.

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John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Charlene Reinhart, CPA has positions at Amazon. Motley Fool has and recommends positions at Amazon. Motley Fool has a disclosure policy.

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