Can I buy Amazon stock in My Roth IRA? | Smart Switch: Personal Finance

(Charlene Rhinehart, CPA)

Amazon‘s (NASDAQ:AMZN) The announcement of the 20-for-1 stock split has generated a lot of excitement among investors. If you’re itching to get Amazon stock in your portfolio, you may be wondering if your Roth IRA (individual retirement account) could be your ticket to becoming a shareholder.

Here are some things to consider before you fill your retirement account with Amazon stock.

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Dip into the Roth IRA for 2022

A Roth IRA is a great way to secure tax-free income in retirement. It’s especially helpful if you think you’ll have to pay higher taxes in the future. You can fund the account now, invest the money, and watch your money grow tax-free. You’ll be able to withdraw every dollar from your account in retirement without the IRS stepping on your neck, as long as you follow the rules.

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For 2022, you can save $500 for 12 months if you want maximize your contributions. After you reach 50, you can contribute an additional $1,000, bringing your total maximum contribution to $7,000. If your income exceeds annual thresholdYou will not be able to make direct contributions to a Roth IRA.

It may not be a good idea to invest money in a Roth IRA if you are in a financial doldrums. But if you have your financial house in order, try to keep as much as you can in the account. Your contributions can help you gain access to some premium stocks like Amazon. But before you invest, you want to have a retirement game plan so you don’t end up risking all your money on a few stocks.

Add Amazon Stock to Your Roth IRA

There are a few things to think about if you want to buy Amazon stock in your Roth IRA. First, it must make sense for your portfolio and align with your goals and risk tolerance. Diversification is key, and you would never want to put yourself in a position where 100% of your retirement earnings depend on a company’s performance.

Let’s say you make your first contribution to a Roth IRA in 2022 and you only have $6,000 in your account. If Amazon has a stock price of $3,000, you’ll need to allocate half of your Roth IRA contributions to stock to get a full share. Placing a large bet on a stock could put your retirement lifestyle at risk, especially if the stock takes a nosedive.

On the other hand, if you’ve been contributing to a Roth IRA for a few years, you may be looking for a full share. Let’s say you have $30,000 saved in your Roth IRA. Buying a full share of Amazon at $3,000 becomes less risky because the shares only make up 10% of your portfolio.

If an entire piece of Amazon is out of the question, buying fractional shares may be more your cup of tea. Let’s say the price of Amazon stock hovers around $3,000. If you decide to contribute $6,000 to your Roth IRA, you can take 5% of your contribution ($300) and buy 1/10th of an Amazon share. If you buy those shares before the Amazon stock split date, you can take advantage of the 20-for-1 stock split. On June 3, you’ll go from owning 0.10 Amazon shares to two full shares of the stock of the company, based on a share price of $3,000 when the shares are split.

Buy Amazon after the split

If you haven’t started contributing to your 2022 Roth IRA, you shouldn’t feel pressured to put money into the account so you can buy Amazon stock. Although the stock split is a big deal for many investors, it is only a cosmetic change for the company’s stock. Amazon is splitting a stock into many parts so that more investors can access the stock at an affordable price. A stock split by itself will not cause the value of your shares to skyrocket.

Let’s say you accumulate your Roth IRA funds and buy shares after the stock split. The shares would go from $3,000 to $150 per share after the stock split. On June 6 you can get whole shares at a reduced price.

Assess Amazon’s position in your portfolio

You can only contribute a certain amount to a Roth IRA each year, so it’s important that you build a portfolio that allows you to minimize risk. If you don’t have enough in your Roth IRA to safely load Amazon stock, you can always consider Amazon’s role in your traditional brokerage account. That way, he won’t face any restrictions and can be sure he’s positioning himself to have a diversified portfolio of assets that can make his retirement dreams come true.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charlene Rhinehart, CPA owns Amazon. The Motley Fool owns and recommends Amazon. The Motley Fool has a disclosure policy.

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