Dow Jones Rallies As Fed Minutes Reveal This; EV Stock Explodes On Guidance; Apple Stock Vaults
The Dow Jones Industrial Average rallied out of the red after the latest Fed minutes were released. EV stock Rivian (RIVN) soared on guidance even as Tesla (TSLA) fell. Microsoft (MSFT) and Apple (AAPL) were among the top blue chips.
A trio of stocks made bullish moves by testing buy points. Evolent Health (EVH), Dollar Tree (DLTR) and Funko (FNKO) all tested entries.
Volume was lower on both the Nasdaq and the New York Stock Exchange compared to the same time Tuesday. This is not ideal on an up day.
The yield on the benchmark 10-year Treasury note rose 10 basis points to 2.91%. West Texas Intermediate crude oil slipped just over 1% to trade at just over $98 per barrel.
Fed Minutes Show Gloves Are Off Amid Inflation
The Federal Reserve, led by Chairman Jerome Powell, decided to make a larger than expected interest rate hike last month as the inflation outlook had deteriorated, the newly released minutes from the meeting showed.
They ultimately decided to raise the benchmark rate by 0.75% despite previously taking such a large hike off the table.
“The near-term inflation outlook had deteriorated since the time of the May meeting,” the minutes said. “Participants were concerned that the May CPI release indicated that inflation pressures had yet to show signs of abating, and a number of them saw it as solidifying the view that inflation would be more persistent than they had previously anticipated.”
U.S. Stock Market Today Overview
Last Update: 3:02 PM ET 7/6/2022
They also decided that an “increase of 50 or 75 basis points would likely be appropriate at the next meeting.”
Central bankers seem to have taken the gloves off as they try to tackle the issue. They believed the economic outlook “warranted moving to a restrictive stance of policy.” In addition, they thought an “even more restrictive stance” could be appropriate if inflation pressures persist.
Nasdaq Rallies As Tech Stocks Flex
The Nasdaq turned in the best gain as it rose nearly 0.8%. Lucid Motors (LCID) was a standout here as it rose nearly 7%.
The S&P 500 was also shining, and was up about 0.7%. Leaderboard stock Northrop Grumman (NOC) impressed here as it rose nearly 4%.
The S&P 500 sectors were mostly positive. Technology and utilities were making the best gains while energy and financials were lagging.
Small caps also pared losses, though the Russell 2000 remained down 0.4%.
Growth stocks also surged back, with the Innovator IBD 50 ETF (FFTY), a bellwether for growth stocks, trading virtually flat.
Dow Jones Today: Microsoft, Apple Stock Pop
The Dow Jones Industrial Average impressed by rallying out of the red to gain more than 150 points, or 0.5%.
Old rivals Apple and Microsoft were two of the best performers on the blue chip index. AAPL rose, but is continuing to trade below its 50-day moving average. The relative strength line is showing signs of improvement though.
MSFT managed to retake its 50-day line after it rose about 1.5%. Microsoft stock remains down around 20% so far for the year.
Both were outshone by Leaderboard stock UnitedHealth (UNH) though after it popped more than 2%.
Tesla Stock Slips As Rival EV Play Explodes
Tesla stock was struggling despite sunny guidance from EV rival Rivian. TSLA was down more than 1% heading into the close. It remains down about 42% since the start of the year.
The former Leaderboard stock remains stuck well below its 50-day moving average. It is near the lows of a consolidation pattern with a 1,208.10 entry.
In contrast, electric vehicle maker Rivian exploded, rising more than 10%. It was given a boost after it said it is on track to deliver 25,000 vehicles in 2022. The firm also reported it produced 4,401 vehicles in its most recent quarter. Although it delivered 4,467, which was in line with internal expectations.
Despite the bullish spike, RIVN stock remains down an eye-watering 71% since the start of the year.
Stocks Rise On Fed Minutes; Microsoft, Google Reclaim Key Level
Outside Dow Jones: 3 Stocks Test Buy Points
Evolent Health is in a buy zone after clearing a new handle entry of 32.55. The relative strength has spiked to fresh heights, a positive. It is breaking out after it struggled to clear a prior cup-with-handle base. It has been moving higher in strong volume, which is a sign of institutional accumulation.
The bullish move saw the medical software stock added to the prestigious Leaderboard list of leading stocks.
A couple of other names also managed to pass buy points of their own.
Dollar Tree is actionable after clearing a cup-with-handle entry of 165.45. Overall performance at the bargain retailer is excellent, which is reflected in an IBD Composite Rating of 96.
The relative strength line is hitting new heights, a positive. Big Money has been buying up stock of late, MarketSmith data shows.
Funko is also in a buy zone after rising past a cup-with-handle buy point of 25.18. This is an early, second stage pattern. The RS line is also spiking here. The stock holds a best possible Composite Rating of 99. In total, 93% of shares are currently held by funds.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more analysis of growth stocks.
YOU MIGHT ALSO LIKE:
Stock Market Forecast For Next Six Months Holds Big Risks For Dow Jones — But Hope Too
MarketSmith: Research, Charts, Data And Coaching All In One Place
These Are The 5 Best Stocks To Buy And Watch Now
This Is The Ultimate Warren Buffett Stock, But Should You Buy It?
American Weed Stocks Are Cheap. They’re About to Get a Sales Bump.
However bad the year has been for most stocks, it has been especially harsh for state-licensed cannabis sellers.
In just the past month, the
AdvisorShares Pure US Cannabis
exchange-traded fund (ticker: MSOS), which tracks America’s multistate operators—or MSOs—fell 25%, while the
How Do Mega Backdoor Roths Work?
A mega backdoor Roth is a unique 401(k) rollover strategy that’s designed for people whose incomes would ordinarily keep them from saving in a Roth Individual Retirement Account. The advantage of using a Roth IRA to save for retirement is being able to make tax-free qualified withdrawals. But not everyone can contribute to these accounts; higher-income earners are excluded. That’s where the mega backdoor Roth comes into play. If you have a 401(k) you’d like to roll over, you could use this strategy to enjoy the tax benefits of a Roth IRA without having income be an obstacle.
Make sure you’re taking advantage of every opportunity to maximize your retirement assets by working with a financial advisor.
Roth Account Basics
Before diving into the specifics of a mega backdoor Roth, there are a few things to know about Roth accounts, including Roth IRAs and Roth 401(k)s.
First, these accounts are both funded with after-tax dollars. That means when you make qualified withdrawals later, you won’t pay income tax on the money since you already paid it upfront. This is the key characteristic of Roth accounts and what makes them so appealing to investors who anticipate being in a higher tax bracket at retirement.
Next, your ability to contribute to a Roth 401(k) is not restricted by your income. But it is for a Roth IRA. For the 2021 tax year, you must be within these modified adjusted gross income limits to make a full Roth IRA contribution:
Single filers: MAGI of $125,000 or less
Married filing jointly: MAGI of $198,000 or less
Head of household: MAGI of $125,000 or less
You can make partial contributions above those income limits. But your ability to contribute phases out completely once your MAGI hits $140,000 (if you file single or head of household) or $208,000 if you’re married and file a joint return. For 2021, the full contribution allowed is $6,000 with a $1,000 catch-up contribution for savers aged 50 and older.
Finally, Roth 401(k) accounts are subject to required minimum distribution rules just like traditional 401(k) accounts. This rule requires you to begin taking money from your 401(k) starting at age 72. A Roth IRA, on the other hand, is not subject to RMD rules.
What Is a Backdoor Roth?
A backdoor Roth offers a work-around for people whose incomes are above the limits set by the IRS. When you execute a backdoor Roth, you roll money over from a traditional IRA to a Roth account. This way, you won’t have to pay taxes on your retirement savings in the Roth IRA when it’s time to make withdrawals. And you’re not subject to required minimum distribution rules either.
But there is a catch. You have to pay income tax on the money you roll over to a Roth account. So while you could save money on taxes in retirement, you’re not escaping the tax liability of a traditional IRA altogether.
How a Mega Backdoor Roth Works
A mega backdoor Roth is a backdoor Roth that’s designed specifically for people who have a 401(k) plan at work. This type of backdoor Roth allows you to contribute up to $38,500 to a Roth IRA or a Roth 401(k) in 2021. This is in addition to the regular annual contribution limits the IRS allows for these types of accounts. To execute a mega backdoor Roth, two conditions have to be met. Your 401(k) plan needs to allow the following:
You can ask your plan administrator whether your 401(k) meets these criteria. And if your plan doesn’t allow for in-service withdrawals or distributions, you could still attempt a mega backdoor Roth if you plan to leave your job in the near future.
If your plan meets the criteria, then you can take the next steps to execute a mega backdoor Roth. This is typically a two-step process that involves maxing out after-tax 401(k) contributions, then withdrawing the after-tax portion of your account to a Roth IRA.
Again, whether you can follow through on the second step depends on whether your plan allows in-service withdrawals. If it doesn’t, you’ll have to wait until you separate from your employer to roll over any after-tax money in your 401(k) into a Roth IRA.
You also need to watch out for the pro rata rule. This IRS rule says you can’t only withdraw pre- or post-tax contributions from a traditional 401(k). So if you’re completing a mega backdoor Roth, you couldn’t just withdraw post-tax contributions if your account holds both pre- and post-tax funds. In that case, you may have to roll over the entire balance to a Roth IRA.
Benefits of a Mega Backdoor Roth
There are three key benefits associated with executing a mega backdoor Roth. First, you can contribute significantly more to a Roth IRA upfront this way. For 2021, the contribution limit is $38,500 on top of the regular annual contribution limit and any catch-up contribution limits that may apply.
You’ll need to know the maximum amount you’re allowed to contribute to the after-tax portion of your 401(k). So for 2021, the IRS allows a maximum contribution of $58,000 or $64,500 if you’re 50 or older. You’d subtract your 401(k) contributions and anything your employer adds in matching contributions to figure out how much you could add to the after-tax portion.
Next, you can enjoy tax-free withdrawals in retirement. This is a benefit you may otherwise not being able to get if your income is too high to contribute to a Roth IRA. By reducing your tax liability in retirement, you can help your investment dollars go further. And you may have a larger legacy of wealth to pass on to future generations.
Finally, a mega backdoor Roth IRA would allow you to sidestep required minimum distribution rules. This means that you could retain control over when you choose to take distributions from a Roth IRA.
So who is a mega backdoor Roth right for? You may consider this move if you:
Have an eligible 401(k) plan at work
Have maxed out traditional 401(k) contributions
Are not eligible to contribute to a Roth IRA because of your income
Have additional money that you want to invest for retirement
Want to leverage the higher Roth IRA contribution limits allowed by a mega backdoor rollover
Talking to your financial advisor can help you decide if a mega backdoor Roth makes sense. And your 401(k) plan administrator should be able to tell you if it’s possible, based on your plan’s guidelines.
Mega Backdoor Roth Alternatives
If you can’t execute a mega backdoor Roth because your plan doesn’t allow it, there are other ways to increase your retirement savings. For example, you could try a regular backdoor Roth instead. This might be something to consider if you still want to enjoy the tax benefits of a Roth IRA but your plan doesn’t fit the criteria for a mega rollover. You could also elect to make Roth 401(k) contributions to your retirement plan at work. This way, you still get the benefit of contributing after-tax dollars and making tax-free withdrawals. You’d be subject to the regular contribution limits and you’d still have to take the required minimum distribution. But that may outweigh the value of tax savings in retirement.
Investing in a Health Savings Account (HSA) is another option. While these accounts are not specifically designed for retirement, they can yield multiple tax benefits. Contributions are tax-deductible and grow tax-deferred. Withdrawals are tax-free when used for eligible healthcare expenses. And at 65, you can take money out of an HSA for any reason without a tax penalty. You’ll just owe ordinary income tax on any withdrawals that are not used for healthcare expenses.
Finally, you could open a taxable brokerage account to invest. This doesn’t necessarily save you money on taxes since you’ll owe capital gains tax when you sell investments at a profit. But it could help you to diversify your investments and there are no limits on how much you can invest in a brokerage account annually.
A mega backdoor Roth strategy could work well for higher-income earners who want to take advantage of Roth account benefits. There are certain rules that need to be followed to make it work, however, so you may want to talk to your plan administrator or a tax professional before going ahead. Keep in mind also that even if you can’t complete a mega backdoor Roth rollover, you still have other options for growing retirement savings.
Tips for Retirement Planning
If you’re saving for retirement in a 401(k) or IRA, pay attention to the fees you’re paying. For instance, check the expense ratios for each fund you’re invested in to understand how much you pay to own that fund on an annual basis. You can then compare that to the fund’s performance to determine whether the fees are justified. Also, consider any administrative fees you might be paying and how those affect your net returns.
Consider talking to your financial advisor about a mega backdoor Roth and whether it could be right for you. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. You can get your personalized recommendations in minutes just by answering a few simple questions. If you’re ready, get started now.
Photo credit: ©iStock.com/designer491
Alibaba Is Tumbling. Chinese Tech Stocks Have a New Headache.
Chinese tech stocks were tumbling on Monday as two of the embattled sector’s leading players faced fresh fines from market regulators over disclosure rules.
China’s State Administration for Market Regulation announced Sunday a wave of penalties for improperly reporting past deals, in breach of competition law.
(ticker: BABA) and
(0700.H.K.) were among the companies fined as a result.
Forex8 months ago
Forex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
Forex4 months ago
Unbiased review of Pocket Option broker
World5 months ago
Why are modern video games an art form?
Forex8 months ago
How is the Australian dollar doing today?
Cryptocurrency8 months ago
What happened in the crypto market – current events today
Stock Markets3 months ago
Amazon layoffs news: company announces record layoffs
Forex7 months ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
Stock Markets8 months ago
Morgan Stanley: bear market rally to continue