(Bloomberg) — Russian President Vladimir Putin has found another weapon to use against European countries supporting Ukraine — Kazakhstan’s crude — and it will cost him almost nothing, writes Bloomberg oil strategist Julian Lee.
Most Read from Bloomberg
While a grace period ticks down before European sanctions on Russian oil kick in on Dec. 5 and the G7 group of industrialized countries considers a price cap on Moscow’s crude exports, Putin is getting his retaliation in early. A court in the town of Novorossiysk has ordered the Caspian Pipeline Consortium to halt shipments from its Black Sea export terminal for a month as punishment for violating oil spill regulations.
The beauty of the move, from a Russian perspective, is that the flow that will be curtailed is not primarily Russian crude, which can be diverted elsewhere anyway, but output from neighboring Kazakhstan. Almost 1.5 million barrels a day of crude supply can be taken off an already tight market at virtually no cost to Russia.
Supplies to European markets, where about two-thirds of CPC crude ends up, already are being constrained by unrest in Libya, which has slashed the north African country’s exports by half and looks likely to send them even lower, as well as the shunning of Russia’s own barrels by former customers.
After operating relatively trouble-free for more than 20 years, the CPC pipeline has been hit with a series of outages in the months since Putin’s troops invaded Ukraine and European countries began sending aid and arms to the government in Kyiv.
March saw a storm damage two of the loading buoys, taking the entire terminal out of operation for several weeks and cutting flows well into April. After a quiet May, a seabed survey in June revealed a World War II mine that required the suspension of loading from two of the three buoys. No sooner were they back in operation than the port was hit again.
An audit of hazardous operation facilities, ordered by a deputy prime minister of the Russian Federation, revealed “a number of documentary violations under the Oil Spill Response (OSR) Plan,” according to a statement on the CPC website. Even though the company was given until Nov. 30 to rectify the violations, an application was made to the court to suspend operations as punishment for the offense.
The halt, if implemented, will have virtually no impact on Russia’s oil exports. Crude of Russian origin makes up only about 10% of CPC volumes and can be rerouted to alternative outlets. The bigger hit will be felt by Kazakhstan, which relies on the pipeline for almost 80% of its hydrocarbons exports and has little flexibility to reduce that dependence.
But losing what could be as much as a million barrels a day of light, sweet crude would be a hefty blow for Europe. By halting CPC flows, even if only briefly, Russia could punish its tormentors to the west by stoking already elevated crude prices, while potentially increasing state revenues from its own virtually undamaged exports.
NOTE: Julian Lee is an oil strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.
American Weed Stocks Are Cheap. They’re About to Get a Sales Bump.
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.
World food prices chart: World food prices have plummeted
Why are worldwide food prices rising? First, because of the current world situation. But world food prices fell sharply in...
Are hedge funds bad? Investors are disappointed in hedge funds
Are hedge funds bad? This year is sure to be one of the worst years in hedge fund history. In...
Chinese economy 2022: China will give up first place in the list of the largest importers of raw materials
Chinese economy 2022 news: China’s commodity-buying companies will be adversely affected by government debt and demographic problems. Over the next...
Positive news from the U.S. labor market has raised fears of further FED rate hikes this year
FED rate hikes and inflation this year are at record highs. The U.S. jobs data released on Friday were truly...
The strength of the U.S. dollar delayed the recession announcement
The jobs report was released at the end of last week’s work week. Economists were confident that 258,000 jobs were...
The US market today maintains growth. Inflation Ahead
The main U.S. index closed the week near the highs of recent months, the highest prices since early May. The...
Price of gold falls on expectations of further US Federal Reserve rate hike
Price of gold falls: the price of the precious metal on Monday morning slightly decreased on the prospects of further...
Goldman Sachs oil price forecast 2022: Oil price forecast worsens in Q3 and Q4
Current Goldman Sachs oil price forecast 2022: Analysts (NYSE:GS) believe another drop in Brent prices has been driven by low...
Why is oil rising in price today after a decline last week
Why is oil rising in price? The price of October futures on London’s ICE Futures Exchange for Brent amounted to...
The Balance: Bitcoin bearish trend hasn’t stopped Americans from investing more in cryptocurrencies
Analytical resource The Balance posted a report stating that 39% of U.S. investors have become more invested in cryptocurrencies, despite...
Cumberland: institutional investors give bitcoin growth predictions as high as $32,000 as early as 2022
US market maker Cumberland conducted a survey of institutional investors and found that most respondents were making bitcoin growth predictions...
Is dogecoin a good investment? Elon Musk: Dogecoin is much faster than the Bitcoin network
Is dogecoin a good investment? The CEO of Tesla again spoke out in support of Dogecoin. He stressed that the...
Voyager Digital is restructuring and preparing for sale
Cryptocurrency broker Voyager Digital said it is preparing a plan to restructure and resume cash withdrawals from the platform According...
Mike McGlone: Ethereum and Bitcoin oversold
A senior commodities strategist at Bloomberg Intelligence believes that according to technical analysis of the market, leading cryptocurrencies are selling...
Chainlink protocol developers refused to support next Ethereum fork
Ethereum is preparing to switch to PoS, and the community expects forks of the second cryptocurrency to appear on the...
PredictIt news: CFTC shuts down PredictIt prediction market in US
Important PredictIt news: The U.S. Commodity Futures Trading Commission (CFTC) has issued an order to shut down one of the...
Is bitcoin mining profitable today? Bitcoin mining difficulty drops for third month in a row
Is bitcoin mining profitable? The difficulty of mining bitcoin began to drop precipitously as the largest-capitalization cryptocurrency’s price fell below...
WazirX news: Indian authorities froze assets of WazirX
WazirX news: India’s economic intelligence agency froze assets of Binance-bought WazirX after allegations of money laundering Indian authorities have seized...
US recession and stock market. Thomas Barkin, Fed: Recession is virtually impossible
The U.S. recession and the stock market are closely linked. The key U.S. stock market indices – Dow Jones, NASDAQ...
Euro rate chart: the euro is not going into a trap
No matter how much FOMC officials try to convince investors of the Fed’s commitment to aggressive tightening of monetary policy,...
European stock market news: Europe started to lag behind the rise in U.S. stock prices
Current European stock market news: U.S. stock futures rose slightly Friday, helped by tech stocks as investors prepare for the...
Dollar rate today live: What is happening to the dollar today?
As you know, the dollar exchange rate has been lagging lately. We all wish wars would end as quickly as...
U.S. stock market capitalization 2022: Morgan Stanley advises against buying U.S. stocks
U.S. stock market capitalization by 2022 leaves much to be desired. The key U.S. stock market indexes – DOW Jones,...
EUR/USD: European Union’s main currency problems
EUR/USD: The pair stayed in the flat, as investors refrained from making big bets before the U.S. labor market data...
Asian stock market charts: Major Asian indicators are up 0.88%
What’s happening on the Asian stock market charts right now? The major Asian indicators are mostly up 0.88%. Some indicators,...
Nonfarm Payrolls and Recession: July’s NonFarm Payrolls Surprise – What Next?
As you know, nonfarm payrolls and the recession are always closely related. The U.S. Federal Reserve sees its main goal...
Stock market today: Stock Europe closes the week with a fall
Stock market today: In trading on Friday, key stock indicators in Western Europe are showing a decline amid weak financial...
Top brokers USA
Due to the strictness of the supervisory agencies to the investment market in the United States, traders who choose a...
Nasdaq 100 index rises for third straight week
The Nasdaq chart today, which reflects the value of stocks of U.S. technology companies, rose 20% from its June low....
4 Dividend Stocks Offering Double-Digit Yields: An Easy Way To Earn Passive Income
Carbon emissions and climate change are well known, so many global companies are concerned about this factor. Today it is...
- Coronavirus9 months ago
Biden administration still seeking agreement from Mexico on return of asylum seekers
- Cryptocurrency9 months ago
NFT World Records: CryptoDragons Sold Out 500 Eggs in Its Primary Pre-Sale in Тhe Тwinkling of аn Еye!
- Economy9 months ago
Analysis-Europe’s big payday remains elusive even as inflation surges
- Cryptocurrency8 months ago
In the Wilder World, Staking and Liquidity Mining Have Arrived
- Cryptocurrency9 months ago
Crypto.com is the #1 app in the Google Play Store in the US
- Cryptocurrency9 months ago
The Next Web 3.0 Social Media Will Be Built on Solana
- Stock Markets4 months ago
WeLion Cooperates with Nio to Produce Semi-Solid Battery
- Forex9 months ago
Dollar Consolidates After Strong Gains; Tapering Could Be Speeded Up