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Having a Roth IRA can be beneficial to account holders. However, if an account holder wants to make a withdrawal after they start investing, there are certain rules they have to follow. This TradingSim article will help people determine how they can make IRA withdrawals, even if they have a backdoor IRA. This article will also help Roth IRA owners whether they’re employed with a company or have a small business. This article will also highlight 10 stocks that Roth investors can add to invest with their accounts.

What are the rules for a Roth IRA withdrawal?

With the COVID-19 crisis, many people are having financial difficulties. Many people want to withdraw from their accounts to pay bills or take care of other expenses. When an account holder wants to make a withdrawal from their Roth IRA, they can easily make that choice. Financial expert Andy Robinson noted that account holders can make Roth IRA withdrawals.

“Your money isn’t untouchable. When you contribute to an IRA, your money isn’t locked away in some unattainable place. It’s not as easy to access as your checking account, but it is accessible,” wrote Robinson.

Robinson also noted that there are times that people can make withdrawals.

“I know that experts [say] “Don’t touch your retirement savings,” but there are a lot of exceptions where you can actually use that money if you run into real problems. It’s not locked up forever. Yes, you will have to pay some penalties on it, depending on how you’re using it, but if you need that money, it’s there, and it could be a safety net,” wrote Robinson.

What are the penalties of early Roth withdrawal?

If a person wants to make a Roth withdrawal, there is one benefit. Robinson noted that there are no penalties for early withdrawals.

“It’s also worth noting that if you use a Roth IRA, you can withdraw any contributions from it at any time, penalty-free,” wrote Robinson.

Some financial advisors say not to make Roth withdrawals

While some financial experts say it’s OK to make Roth withdrawals, others disagree. Riley Poppy is a financial planner and owner of Ignite Financial Planning in Seattle. He says that before making Roth withdrawals, account holders should try other options.

“Evaluate a personal loan, depending on what type of interest rate you might build a qualify for,” said Poppy.

Poppy also says that people should also try liquidating other accounts first.

“If you have investment accounts, you should think about liquidating taxable accounts first. traditional IRAs and 401(k)s second, and Roth IRAs last,” said Poppy.

“Consider taking money first from pre-tax accounts or traditional retirement accounts before Roth IRA accounts,” added Poppy..

He said that there’s more flexibility to withdrawals from other accounts.

“You have a little bit more flexibility since you can take out different shares. and you can really control the tax consequences a little bit better,” said Poppy.

SEP IRA — Roth IRA withdrawals can help account holders

Consulting a financial advisor is key to Roth

While Poppy doesn’t recommend Roth IRA withdrawals to his clients, he does see the advantages of Roth IRA withdrawals.

“If taking from a Roth IRA, it can be beneficial since you can access your basis or contribution tax-free without penalties,” said Poppy.

Financial Expert — Financial advisor can help people decide how to make Roth IRA withdrawal

Poppy notes that whatever decision account holders make, they should consult a financial advisor.

“Input from a good CPA and a good financial planner is really helpful. [They can help] you model it out in terms of what the impact long-term will be,” said Poppy.

Poppy said that account holders should consider if they replace the funds they’re withdrawing from Roth IRA’s.

“The key thing to remember is that you are reducing your future retirement income. Do you have a plan to replenish that?” said Poppy.

Can a Roth IRA withdrawal buy a home?

If a person needs extra money, they can use Roth IRA withdrawals to buy a home.

Eric Roberge is the CEO and lead advisor of Beyond Your Hammock, a a fee-only financial planning firm. He noted that Roth withdrawals can be used to purchase a home.

“If you no longer need your Roth IRA money for retirement, then you may be able to tap the account to generate the cash needed for the purchase,” Roberge says.

Jeffrey Levine is a certified public accountant (CPA) and the director of advanced planning with Buckingham Strategic Wealth. He said that if a person can take Roth withdrawals to buy a home with certain requirements.

“As long as your Roth IRA has been established for at least five years, you can use that money penalty-free for a home down payment. as long as it qualifies as a first-time home purchase,” said Levine.

“The nice thing about Roth IRA withdrawal is that the contributions you originally make can be withdrawn for anything. at any time without penalty. It’s when you get into the earnings that you run into trouble, ” said Cohen.

While a person can use the funds to buy a home, Cohen notes that “even if you keep contributing to another retirement account, taking money out of a Roth to buy a home incurs opportunity cost”.

Eric Roberge is the CEO and lead advisor of Beyond Your Hammock, a fee-only financial planning firm. He notes that a Roth withdrawal can be detrimental to account holders.

“If you’re using the Roth because that’s the only source of funding you have to make the purchase, that might be a red flag. If you’re stretching yourself financially to buy a house, then buying might not be the best idea,” said Roberge.

Roberge adds that a Roth withdrawal shouldn’t dip into an account holder’s savings.

What is the difference between traditional and Roth IRA withdrawals?

While both traditional and Roth IRA’s are both retirement accounts, there are differences between the withdrawals. In a traditional IRA, there are no penalties to withdrawals unless a person makes the withdrawal before they’re 59 1/2. Mike Piershale is president of Piershale Financial Group. He said that while there are penalties for traditional IRA withdrawal, there are exceptions.

“On a traditional IRA, generally you can’t withdraw until 59 ½, although there are all sorts of exceptions,” said Piershale.

Some of the exceptions include medical expenses and disabilities.

While he doesn’t advocate early withdrawal of Roths, he said waiting too long for a withdrawal is a mistake, too.

“When you retire, often people have what I call this ‘window of opportunity,’ where they have low-income years,” said Piershale.

Piershale said the first years of retirement are a good time to convert funds from a traditional IRA to a Roth. He said that an account holder shouldn’t convert too much or else they will get bumped up to a higher tax bracket.

“Convert just enough to keep you in the same tax bracket,” said Piershale.

With a traditional IRA, an account holder has to make required minimum withdrawals (RMD’s) at 70 1/2. Leslie Thompson is a certified financial planner at Spectrum Management Group. She said that account holders should consider their individual accounts before making withdrawals.

“You have to look at accounts collectively and individually. Each account can have its own distribution amount. [The RMD] is where a lot of mistakes happen,” said Thompson.

Don Chamberlin is the president and CEO of The Chamberlin Group. He advises account holders to make withdrawals when they’re in a low-income tax bracket.

“Because you’re taking money out early, your RMD at age 70 ½ will be less. The lower RMD could then result in lower taxes. That’s a strategy we use quite often because many people have a good portion of their assets in qualified retirement plans,” said Chamberlin.

If older account holders make early withdrawals, Thompson said it may affect Medicare payments.

“It has implications for what you pay for Part B premiums,” said Thompson. “Higher-income people pay more,” added Thompson.

Roth IRA withdrawals have more options for account holders

While traditional IRA holders face penalties, Roth IRA holders don’t face as many penalties. If an account holder had an account longer than five years, have a medical emergency, or are a first-time homebuyer.

CARES Act helps make Roth IRA withdrawals easier

The passage of the CARES (Coronavirus Aid Relief and Economic Security) Act in March enabled account holders to make premature Roth IRA withdrawals. Dara Luber is the senior manager of retirement product at TD Ameritrade. She noted that with the bill’s passage, there are no required minimum withdrawals in 2020.

“One of the biggest provisions of the CARES Act is that there are no required minimum distributions (RMDs) for 2020. If you don’t need to take the money, you won’t have to,” said Luber.

Luber notes that there are penalty-free withdrawals if a person has been affected by coronavirus.

“Normally, you’d need to be at least 59 1/2 to take penalty-free withdrawals from your accounts,” said Luber. “However, under these rules, if you, your spouse, or a member of your family has been impacted by coronavirus, you may be able to take out money without paying that 10% penalty as long as you do it by December 31, 2020.”

Roth IRA withdrawal can benefit account holders

Mat Sorenson is the CEO & Attorney at Directed IRA & Directed Trust Company. He explained the new Roth IRA withdrawal rules.

“The new law increases the dollar amount you can loan yourself from your own 401(k) from $50,000 to $100,000 and also creates a penalty-free early distribution rule whereby IRA or 401(k) account owners under age 59-and-a-half can take a penalty-free retirement account distribution of up to $100,000,” wrote Sorenson.

Financial expert Michelle Singletary noted that people can repay the loan withdrawals within three years.

“You can repay all or a portion of the distribution within three years, and the repayments will not be counted toward the annual contribution limits”, said Singletary.

In the bill, seniors over 72 are also exempt from required minimum distributions.

“Additionally, the waiver covers the first RMD, which individuals may have delayed from 2019 until April 1, according to a summary of the Act’s provisions by Fidelity Investments,” noted Singletary.

Relaxed limits on Roth withdrawals are key in COVID-19 era

Financial expert Bill Biscoff noted that there are also no limits on how the COVID-19 related IRA withdrawal is used as well.

“In effect, the [CARES ACT] allows you to borrow up to $100,000 from your IRA(s) and repay the amount(s) any time up to three years later with no federal income tax consequences. And there are no limitations on what you can use [coronavirus-related distribution] funds for during the three-year period,” said Bischoff.

The “CARES Act” relaxes the rules on tapping retirement accounts, but only up to a $100,000 cap. If you take more than that, you’ll be subject to the old familiar tax and penalty rules.

If you have a Roth IRA, you have already paid income tax on that money, so any withdrawal won’t be subject to taxes now. In other words: get “post-tax” money before you tap into any “pre-tax” money.

Financial expert Suze Orman says Roth IRA withdrawals may not be wise

While many people may want to make Roth IRA withdrawals for extra money, financial analyst Suze Orman advises against that decision.

“If you take the money out, you’re racking in a 20-some percent loss right now, and you’re going to pay income taxes on that money, which will be another 20% or so,” said Orman.

Saving money with Roth IRA withdrawals is crucial

Orman advises Roth IRA holders not to take the Roth funds out before the stock market rebounds.

“If you take that money out and spend it, if you’re not frugal, if you’re just still living your lifestyle on some level, you will miss the best opportunity and the best time to have your money in the market that there’s ever been in about 10 years,” added Orman.

Top 10 Stocks for Roth IRA investors

1. Apple

While Orman argues that the stock market will rebound, here are 10 stocks that can be a good investment for Roth IRA’s. Apple (NASDAQ:AAPL) stock should rise after the launch of its latest iPhone.

Analyst Jim Suva, senior tech analyst at Citi, is bullish on Apple stock.

“If we look at year to date, the stock has done extremely well. In fact, it has outperformed the Nasdaq, the S&P 500, the broader markets, it has rallied. … Simply put, Apple during this pandemic is generating a tremendous amount of cash flow. They’re inventing, they’re coming out with new products and … they’re hiring. A lot of industries are laying off people and doing furloughs and reductions of … hours of workers, we’re actually seeing that Apple is hiring,” said Suva.

“That means they’re coming out of the pandemic stronger and importantly, the products that you’re showing that Apple announced are going to be ready and on the shelves and available in large quantities for the holiday shopping season and that’s very important,” added Suva.

Joanna Stern is the personal technology columnist at The Wall Street Journal. She notes that the latest iPhone will help Apple reach more consumers and raise its stock.

Apple’s new products will help stock rise

“What is the benefit for normal consumers? Where are they going to feel the faster speeds? And regardless of if everything works perfectly, right, we’ve got good hardware, good network and you can get 5G all the time, what do you use the faster speeds for on your phone? Where is the answer to that question is the big thing. [CEO Tim] Cook did point out downloads,” said Stern.

“Certainly downloading video, downloading music, that’s going to be faster. They also did a lot of gaming demos where you can see things instantly rendering and talking about how this would be faster than your home Wi-Fi. That’s another good thing for some consumers, certainly, but the killer app, which is what this is all about, we don’t know yet and this is why Apple is betting and that’s why … the carriers need Apple to bet because it’s all about the new era,” added Stern.

Krish Sankar is the senior research analyst at Cowen. He said 5G could give Apple stock a boost.

“I would say in terms of the overall event a lot of the specs are largely in line with what the supply chain had been telegraphing for a long time. I thought the price point was very attractive although there was some speculation of the pricing late last week, so largely overall I’d say in-line event. … We did a survey where we found a lot of respondents will be willing to upgrade their smartphones because of 5G. We just think that actually this 5G could be a longer, stronger cycle,” said Sankar.

Apple is a great stock to add to Roth IRA investments.

2. Amazon

In addition to Apple, Amazon has boomed in the wake of COVID-19. Mizuho analyst James Lee said Amazon is a buy because of consistent sales.

“From our proprietary checks using Searchmetrics, U.S. search traffic maintained a consistent growth rate compared to 2Q20 at 14% [year-over-year],” Lee wrote in a note to clients. “With conversion rates rising during the pandemic, we believe that 3Q20 is tracking ahead of consensus revenue growth of 32% YoY, or 8 points of deceleration compared to 2Q20, partially due to the rescheduling of Prime Day this year, ” said Lee.

Amazon stock is a top choice for Roth IRA withdrawal replacements

Lee said the rise in online shopping will help Amazon this holiday season as well.

“By pulling some demand forward, the company is able to smooth out the peak in demand somewhat as it spreads it across a longer period, and exert less pressure on its fulfillment network, while still recognizing all the revenues in the fourth quarter. This is all the more important that with Covid-19 and the need for social distancing, consumers are likely to avoid the rush on physical stores, which typically starts around Black Friday weekend, and instead turn to online to satisfy their shopping needs,” said Lee.

Amazon is a key stock to add to a Roth IRA investment.

3. Netflix

Another stock that’s benefitted from COVID-19 is Netflix (NASDAQ:NFLX). As more people quarantined, they watched the streaming service more than ever.

Steve Chiavarone is a portfolio manager, equity strategist, and vice president at Federated Hermes. He noted that Netflix is performing well because movie theatres are suffering as the coronavirus keeps people home.

“Cinemas are just a really tough space,” said Chiavarone.

NFLX - Flat for the day — Netflix is a top buy to supplement Roth IRA withdrawal

Chiavarone notes that Netflix stock is a growth stock that has staying power.

“The trend towards streaming is certainly in place,” he said. “We’ve seen a lot of the studios change their agreements where you’re now going to have a shorter period of exclusivity in the cinemas before getting programs onto streaming channels. I think in general the space is well-positioned. I think Netflix is the leader in that space and I think the secular trend is at their back,” said Chiavarone.

Jeffrey Wlodarczak is a financial analyst that is also bullish on Netflix stock.

“NFLX offers consumers an increasingly compelling unique entertainment experience on virtually any device, w/o commercials at a still relatively low cost. The company appears to operate in a virtuous cycle, as the larger their subscriber base grows (and their average revenue per user increases) the more they can spend on original content, which increases the potential target market for their service (and reduces existing subscriber churn) + enhances their ability to take future price increases (they are due for an increase as early as Jan 2021) and dramatically increases barriers to entry”, said Wlodarczak.

If an account holder wants to supplement their Roth IRA withdrawal, they can choose Netflix stock.

4. Zoom

Another stock that is a top pick for Roth IRA’s is Zoom (NASDAQ:ZM). The videoconferencing company is a ubiquitous presence since people have to work and attend school from home. BTIG analyst Matthew VanVliet says Zoom is a buy.

Zoom stock is a top stock to supplement Roth IRAs

“Overall the growth of the company has been unprecedented but as it expands well beyond a video-conferencing tool into a core human interaction platform forever augmenting how multi-modal interactions evolve into the future, the growth trajectory appears to only slow slightly,” said VanVliet.

“While much of the legacy environment is simply treading water, Zoom is pushing the envelope on product innovation and what the future of work / re-opening will actually look like rather than trying to form-fit existing tech to previous issues, which we believe will help Zoom emerge as the leading video platform that is pervasive across the entire IT landscape,” said VanVliet.

Zoom will grow as a Roth IRA withdrawal supplement

BofA Securities analyst Nikolay Beliov wrote in a note to clients that he believes that Zoom will continue to grow with new products.

“We believe Zoom’s increasing relevance and continued good execution translate into both near-term and long-term upside ,” wrote Beliov in a note to clients.

“Furthermore, new product releases and enhanced capabilities signal Zoom’s ambition to become a more holistic collaboration and workflow platform, vs a video and [unified communications as a service] solution,” added Beliov.

D.A. Davidson’s Rishi Jaluria also wrote to clients that Zoom stock is a good addition to Roth IRAs to supplement withdrawals.

“Our main takeaway was although [Zoom] has had strong traction in COVID-19, it is still underpenetrated and faces a massive market opportunity with runway for sustained growth post-COVID-19,” wrote Jaluria.

Zoom is a strong stock to supplement Roth IRA withdrawals.

5. Google

Google parent Alphabet (NASDAQ:GOOG) is performing well during the COVID-19 crisis. Ensemble Capital rates Google stock as a buy.

“After rallying by over 20% in July and August, Google’s share price pulled back sharply in September during the market wide correction. We believe that Google’s shares remain undervalued and that while the pandemic has hurt business performance in 2020, that the core value of Google Search, YouTube and their other properties such Google Maps has not been permanently impaired in any way and in fact the post-COVID world likely depends even more heavily on Google’s digital tools,” said Ensemble Capital.

Google stock is a robust stock for Roth IRA holders who want to invest in tech.

6. Microsoft

Another tech stock that is doing well during COVID-19 is Microsoft (NASDAQ:MSFT). Microsoft had performed well because of its cloud technology. Jefferies analyst Brent Thill said that Microsoft is going to continue to rise because of its digital innovation.

“We were overwhelmed by the number of announcements and innovation at Microsoft’s digital event Ignite with some of the most noteworthy product announcements around Teams, communication, and security,” wrote Thill in a note to clients. Thill said he expects Microsoft will hit a price target of 240.

Mizuho Securities analyst Gregg Moskowitz said Microsoft is a strong stock and a good Roth IRA investment in the future.

“We view Microsoft as a diversified business with excellent visibility and these product enhancements should help sustain near double-digit revenue growth for the foreseeable future,” said Moskowitz.

Microsoft stock top for Roth IRA withdrawal supplement

Moskowitz also wrote that cloud technology will help the stock grow.

“Looking forward, we continue to believe Microsoft is positioning for even greater success in cloud,” said Moskowitz.

William Blair analyst Jason Ader also thinks that Microsoft is a buy.

“Microsoft sits in the enviable position of being able to capitalize on salient secular trends such as digital transformation, cloud migration, and DevOps,” said Ader.

Microsoft is a strong stock for Roth IRA withdrawal supplements.

7. Gilead

Gilead(NYSE: GLD) is a pharma stock that is helping people through this coronavirus crisis. Gilead’s COVID-19 treatment remedesivir has been touted as a top treatment that President Trump used during his bout with coronavirus. While remdesivir has not been proven to reduce mortality, it has been proven to reduce hospital visits for coronavirus patients. Raymond James analyst Steven Seedhouse noted that Gilead has some potential for growth.

Gilead stock a key stock for Roth IRA withdrawal supplement

“The updated data continue to suggest RDV provides only incremental benefit to some hospitalized patients but no clear mortality benefit. Recall the original corresponding NEJM publication for this trial pointed to a potential (but not yet stat sig) mortality benefit at day 14 that appeared driven really only by patients with baseline ordinal score of 5 (hospitalized, requiring any supplemental oxygen),” said Seedhouse.

With Gilead’s promising remedesivir treatment, the stock could be beneficial to Roth IRA holders.

8. Pfizer

In addition to Gilead, Pfizer (NYSE: GLD) is another pharma stock that is outperforming during the coronavirus pandemic. With a COVID-19 vaccine imminent, RBC Capital analyst Randall Stanicky rates Pfizer stock as a buy.

“We are encouraged by the data to date and believe Pfizer remains on track to have a clear sense of the vaccine’s profile by the end of October, with potential FDA approval shortly thereafter,” said Stanicky.

David Risinger, equity analyst at Morgan Stanley, also rates Pfizer stock as a good addition to Roth IRAs.

“With the announced deals to divest its Consumer and Upjohn businesses, PFE will be left with a cleaner platform in 2021 and beyond with best-in-class revenue and EPS growth through 2025. Importantly, that growth is not predicated on major pipeline contribution or acquisitions, providing solid visibility,” said Risinger.

“We project solid growth prospects, and the company’s COVID vaccine candidate offers optionality. Pfizer’s financials and dividend are set to adjust in 4Q20 when it completes the Viatris transaction. Pipeline execution will be key to investor perception, given late-decade patent expiration exposure,” added Risinger.

Analysts says Pfizer is a buy for Roth IRA’S

Risinger also predicts Pfizer has strong growth potential.

“Pfizer projects 2025 sales of $55.7 billion, which reflects 6%+ 5-yr CAGR (compound annual growth rate)’20-’25. Pfizer has strong growth potential in both existing and pipeline products – it forecasts $8 billion in incremental sales from each in 2025.

“Non-risk adjusted pipeline revenue is projected to be $15 billion+ by 2025, including $6 billion from Vaccines, $3 billion from Inflammation & Immunology, $3 billion from Rare Disease, and $3 billion from Oncology; risk-adjusted revenue is $8 billion. Prevnar 20V is not included as part of 2025 vaccine pipeline sales because it will cannibalize the existing 13V,” added Risinger.

Pfizer is a strong stock for Roth IRA’s.

9. IBM

IBM(NYSE:IBM) is a reliable dividend stock for Roth IRA’s. The company’s management spoke about its strong cloud tech division with Red Hat.

“Red Hat delivered strong results in the period with normalized revenue growth of 18%”, said IBM.

IBM stock good to prevent Roth IRA withdrawal

IBM noted that the growth was “driven by the synergistic effect of IBM and Red Hat” and that expansion helped IBM grow.

“Last August, we talked about how Red Hat would benefit from IBM’s incumbency in large accounts and leverage our global reach to expand into new markets,” said IBM.

“We’re seeing that where IBM and Red Hat come together, clients are making larger scale architectural commitments and longer-term and more strategic purchases. This quarter we had a significant increase in the number of Red Hat large deals”, added IBM management.

The company also “expanded Red Hat’s presence in underpenetrated focus markets.”

IBM CFO James Kavanaugh also spoke about the company’s strong balance sheet.

“Our prudent financial management in these turbulent times enabled us to expand our gross profit margin, generate strong free cash flow and improve our liquidity,” said Kavanaugh.

Kavanaugh also touted its strong dividend yield.

“The company also returned $1.5 billion to shareholders in dividends and stock buybacks. “We have the financial flexibility to continue to invest in our business and return value to our shareholders through our dividend policy,” said Kavanaugh.

For a strong dividend stock to prevent Roth IRA withdrawals, account holders can pick IBM.

10. NVDA

Nvidia(NASDAQ:NVDA) is a tech company that is performing well with its computing graphics.

Logan Purk is the senior equity analyst at Edward Jones in St. Louis. He details that the recent acquisition of British software company ARM gives NVDA “an all-in-one turnkey solution for AI deployments within data centers and smart electronics, further solidifying Nvidia’s lead within this fast-growing market.”

Purk also notes that its programming system makes the stock a cutting-edge buy.

“Nvidia’s proprietary programming architecture, called CUDA, makes its products easier to use, program and deploy, compared with other products,” said Purk.

“Given the company’s position in growth markets and our optimistic growth outlook, we believe shares are attractively valued for long-term investors,” said Purk.

“We rate Nvidia shares as a ‘buy’,” Purk says.

“In our view, Nvidia maintains an attractive position within its gaming markets, with nearly 70% market share. The company continues to expand its presence in the fast-growing data center and automotive markets, particularly with AI, which should lead growth over the long term,” added Purk.

Norm Conley is CEO and chief investment officer at JAG Capital Management in St. Louis. He said that Nvidia’s growth makes the stock a buy.

“NVDA’s valuation is demanding, but we think it’s reflective of the company’s leadership position in fast-growing end markets,” said Conley.

Conley sees little downside to Nvidia’s growth.

“From a fundamental perspective, we see little to pick on outside of the company’s exposure to an overall sluggish PC market and challenging automotive market given the current macro backdrop,” explained Conley.

Danielle Shay is the director of options at Simpler Trading in Austin, Texas. She also rates Nvidia a buy because of its recent acquisitions.

“Nvidia’s acuisition of (Arm’s) technology is very significant. It’s a space that AMD is not in currently. Because of the ARM acquisition, Nvidia will be able to breach more into the AI space and growth potential,” Shay explains.

Nvidia is a strong tech stock to add to Roth IRA’s.

Roth IRA withdrawals can be beneficial with proper planning

If an account holder need to make a Roth IRA withdrawal, there are many options that can be made. However, prudent planning is necessary to avlid mistakes and still keep the accounts healthy. With TradingSim’s blogs and charts, account holders can find the best stocks in which to invest their IRA’s. TradingSim can also help Roth IRA holders find the best information if they hve to make Roth IRA withdrawals.

When people are saving for retirement, many debate whether to open a Roth IRA vs. traditional IRA. Whether there is a bull or bear market, investors can decide which method will help them rebalance their portfolios. This TradingSim article will assist investors who want to decide which method is best for them.

What is the difference between a Roth IRA vs. traditional IRA?

In the comparison between a Roth IRA vs. a traditional IRA, there are many differences.

A traditional IRA has these key characteristics :

Traditional IRA’s are offered by employers to workers.
An account holder can put away a significant part of their pre-tax earnings.
With a traditional IRA, taxes are delayed until funds are withdrawn.
Funds can’t be withdrawn penalty-free until the account holder is 59 1/2.
If an account holder makes large contributions to the IRA, it can lower their taxable income.
Compound interest can help account holders build more wealth in retirement.
Traditional IRA’s don’t have income limits.
Account holders can’t make contributions after they turn 70 1/2.
When account holders turn 70 1/2, they take required minimum distributions.

On the other hand, a Roth IRA has these characteristics:

Roth IRA’s are purchased by an individual.
In 2020, the maximum contribution limit is $6,000.
There is no age limit to Roth IRA contributions.
In contrast to traditional IRAs, Roth IRAs don’t have required minimum distributions.
When a person makes a withdrawal at any time, there are no penalties.

What are the advantages of a traditional IRA?

Steve Frazier is president of financial firm Frazier Investment Management. He says that people that earn too much for a Roth IRA could benefit more from a traditional IRA.

“It’s possible (to be) disqualified from the Roth in the first place,” said Frazier.

David Johnson is a financial adviser at Modern Horizons Wealth Advisors. He said the pretax contributions to traditional IRA’s can help people save money.

“Pretax contributions are one of the few tax reduction strategies many workers have available. Especially now, since fewer are able to itemize because of the increased standard deduction,” said Johnson.

What are the downsides to a traditional IRA?

Some financial experts like Ed Slott says account holders that have a traditional IRA can be affected by increased tax rates.

“With a traditional IRA, you’re at the mercy or uncertainty of what future higher tax rates might do to your retirement savings. With a Roth IRA, you don’t have to worry about future rates, because your tax rate in retirement will be zero,” said Slott.

Young people may also balk at traditional IRAs if they want to make withdrawals before the assigned age of 59 1/2. Slott noted that Millennial account holders may see that requirement as a downside to a traditional IRA.

“That’s a big deal for lots of younger people who are worried, ‘What if I need to get to my money?’” said Slott.

Chris Chen is a financial adviser at Insight Financial Strategists. He said that going from a traditional IRA to a Roth IRA can cause tax liabilities.

“Going from a traditional to Roth is giving up a lot of assets and income. The name of the game is not to pay no taxes on distribution, but to minimize taxes over a lifetime,” said Chen.

Financial experts say Roth IRA has advantages

Some financial experts say that Roth IRAs have a benefit. He said that even though Roth IRA holders have to pay taxes up front when they open an account, they can make tax-free withdrawals in retirement.

“Most people are better off taking a tax hit now,” said Frazier.

Steven Elwell is a certified financial planner and partner with Level Financial Advisors. He believes that as a person’s income increases, the lack of withdrawal taxes make Roth IRA’s more attractive.

“If you expect your income to go up, then something like a Roth might make sense,” said Elwell.

As financial expert Ed Slott noted, Frazier agrees that the Roth may be a better option for younger people saving for retirement.

“If you’re looking for flexibility, the Roth is the superior saving vehicle for the younger generation,” said Frazier.

Clayton Alexander is a registered investment advisor and founder of Teton Wealth Group. He said that starting a Roth IRA has benefits for people open one at an early age.

“One of the benefits of starting a Roth at an earlier age is the concept of compounding interest that can occur inside the investment, tax-free,” says Alexander.

Compound interest impacts comparison of Roth IRA vs. traditional IRA

Elwell isn’t sure that a traditional or Roth IRA is better.

“I don’t think there is a hard and fast rule that (one) is better,” said Elwell.

Jeannette Bajalia is president and principal advisor of Petros Financial. She said either option is good for investors saving for retirement.

“It’s not whether you should take a Roth over a traditional 401(k), but what is the right mix of savings to achieve your life and retirement goals,” says Bajalia.

Financial expert Chris Hogan says to consult a tax professional before opening a traditional IRA.

“If you have the money to pay the taxes on that money, it is a fantastic thing to do each and every year,” said Hogan.

Financial experts say people can use Roth to save

For many people who are struggling with finances, some withdrawals may be acceptable if they held the accounts for at least five years. Mark Jaeger is the director of tax development at TaxAct. He said that Roth IRA’s can be used as emergency funds in emergency situations.

“People are starting to be laid off, and it’s difficult to find that money when you start being put out of work. But you can always get your basis back from the Roth IRA,” said Jaeger.

Financial experts recommend Roth vs. traditional IRA

Another financial expert for Roth IRAs is retirement expert Jeanne Fisher. She is the managing director at Strategic Retirement Partners. She says that Roth IRA’s are beneficial for its low federal tax rate.

“If they are in a very low effective federal tax rate, or even a negative tax rate, the Roth is very beneficial. Finally, it can be used as a flexible bucket in retirement for high-income, high-net-worth clients,” Fisher says. “We consider all things like: How is the rest of the nest egg saved? Is it all tax-deferred? Are they expecting a pension? Do they need all of their retirement savings or do they intend to pass it to the next generation? Will they need all of their projected RMDs? I’m not exaggerating when I say—especially particular to the 401k—that eight out of 10 times I will recommend a Roth contribution,” said Fisher.

Fisher and other financial advisers show how Roths help people save on taxes.

“We illustrate the total growth of the portfolio and what the cumulative account balance could be in retirement. We also educate to how it affects their paycheck. Electing the Roth in the 401k isn’t going to result in a big tax bill when you file your taxes. Instead, the tax withholdings are adjusted on your paycheck, and in most cases, you are seeing only a minor adjustment each pay period,” said Fisher.

Fisher also touts the tax-free growth in Roth IRA’s.

“For one, investors always decide how much they want to save first, and then we talk about taxes. I have never, in my 12-year career, had someone walk back in my office with their ‘tax savings’ and ask to invest it. It just doesn’t happen. Also, most people max out the IRA contributions, which completely negates the argument,” said Fisher.

Financial experts say to talk to advisors before converting to Roth vs. traditional IRA

Jennifer Weber is vice president of financial planning at Weber Asset Management. She said that it’s key to consult a financial advisor before choosing a Roth vs. traditional IRA.

“It’s important to understand the following: what your company offers, does your company offer a match on retirement contributions and are you eligible to contribute directly to a Roth IRA (based on income limits),” said Weber.

Clark Howard is a financial expert that recommends traditional IRA’s because of potential rising tax rates.

“Our tax rates today are unusually low because we’re running a massive budget deficit. At some point, those tax rates will increase. That means there’s a good chance tax rates will be higher when you go to spend your nest egg in 25 or 30 years,” said Howard.

Howard said that Roth IRA’s may be taxed at a higher rate later, so people should choose traditional retirement accounts.

“Remember, in general, tax rates are likely to go higher over the years no matter which political party is in power. That means it may make more sense to skip the deduction of a traditional IRA now to avoid tax later with a Roth IRA,” said Howard.

Financial experts say Roth IRAs have tax benefits

Financial expert Suze Orman said Roth IRA’s could be best for investors while tax rates are low. She suggests people should invest in a Roth before taxes increase to pay off the increasing national debt.

“Do you really think that tax brackets aren’t going to have to go up five, 10, 15 years from now in order to pay for all the debt that we’re carrying? Of course, they’re going to have to,” said Orman.

While Suze Orman recommends Roth IRA’s, there are financial analysts that disagree with the world-renowned financial analyst. Monica Dwyer is vice president at Harvest Financial Advisors. She thinks that Orman’s advice may be too general. Dwyer said people should pick a traditional IRA or Roth based on their own financial situations.

“I think that Suze is concerned that future taxes will be much higher because we cannot continue on the spending parade that we have been on, our deficit is ballooning and, just like someone with a lot of credit card debt, this debt will have crushing consequences at some point,” said Dwyer.

“Does that mean her advice is good? Not necessarily. It just depends on the person,” added Dwyer.

Roth IRAs have advantages for young investors

Thomas Scanlon is an adviser at Raymond James. He said that a Roth IRA can give tax-free advantages to young investors.

“Folks just starting out might have almost 40 years of tax-free growth. What a great way to build wealth,” said Scanlon.

Mark Beaver is a financial adviser at Keeler and Nadler. He said that a favorable tax code can help investors save more money.

“The tax code today is about as favorable as it’s ever been and the likelihood of that changing (to be higher) in the future is pretty good. Because of that, we look to add to Roths directly or do things like backdoor Roth contributions or conversions where it makes sense,” said Beaver.

Financial experts recommend Roth IRA for young people

Because Roth IRAs don’t have age withdrawal limits, young people can let money grow tax-free. Ryan Marshall is a New Jersey-based certified financial planner. He said young investors should consider a Roth IRA.

“This is an area most young people don’t consider. We have seen a lot of clients who are withdrawing more from their 401(k) account than they actually need to live on in retirement. The Roth IRA currently does not force you to withdraw funds and continues to grow tax-free so long as you leave money invested,” said Marshall.

“It is great to build up those Roth funds when you are younger because you may not qualify when you are older,” added Marshall.

Pete Hunt is a certified financial planner and director of client services at Exencial Wealth Advisors. He recommends Roth IRA’s for most of his clients. However, he doesn’t recommend Roths for high-income clients.

“I recommend it to all my clients, unless they are in a situation where they think they will make significantly less income in the future,” said Hunt.

‘I like having a Roth IRA, if they are eligible for it, just because it gives a lot of flexibility that if they need that money, they can pull the contributions at any time for any reason,” Hunt said.

What are the disadvantages of a Roth IRA vs. traditional IRA?

While the Roth IRA can have benefits, there can be a tax downside. Dwyer said Congress can still add increased taxes to Roth IRA’s.

“Congress can get pretty creative about where they are going to collect taxes from and there is no guarantee that they won’t someday go after Roths,” said Dwyer.

How can a person make a Roth conversion?

Since many people want to save money on their Roth IRA’s, there can be an advantage with reduced required minimum deductions. Maria Erickson is a financial adviser. She said taxpayers can save on taxes without a required minimum distribution.

“This year is an unprecedented opportunity. The numbers are pretty compelling. You can reduce your tax bill by 30% to 40%,” said Erickson.

How can Roth IRA’s help with homeownership?

In addition to Roth IRA’s helping people save for retirement, Roths also can be used for another purpose. If a person meets certain requirements, they can withdraw $10,000 from their Roth IRA’s to purchase a home. Daniel Galli is the principal of Daniel J. Galli & Associates. He suggests that young people can use their Roth IRA’s to buy a home.

“We’ve long suggested that young people use a Roth IRA to save the considerable amount needed for a first-time home purchase,” said Galli.

“As long as we can meet the five-year rule, they can use all contributions plus up to $10,000 of gain, free of tax and penalty,” Galli said.

While people can use their Roth IRA’s to buy a home, Galli notes that people have to aggressively invest to fund the accounts in the future.

“This strategy requires some market risk in order to enjoy some gains, but the rewards can balance that,” said Galli.

While Galli is for people using the Roth IRA for buying homes, some financial planners are opposed. Certified financial planner and CPA Jeffrey Levine is the director of advanced planning at Buckingham Wealth Partners. He said that Roth withdrawals should be rare and reduced over time.

“You might want to make it more conservative over time,” Levine said.

Financial experts advise caution witth Roth IRA home ownership

In addition to Levine, there are other experts who think that people should save their Roth IRA funds. Shon Anderson is president of Anderson Financial Strategies.

“These accounts are designed to help people accumulate as much money as possible for retirement,” said Anderson.

“You can obtain a loan for a home, car, business venture, college tuition … but no one will ever receive a loan to retire,” said Anderson.

Galli said some younger account holders should use Roths to buy homes.

“If the person is contributing to a 401(k), getting a decent match, they’re on a good track for retirement and the Roth is just a nice addition, I might consider it,” said Galli.

However, he doesn’t advise Roth IRA’s for home ownership if people are closer to retirement.

“But if their only retirement savings is the Roth and they’re, say, in their 40s, I probably wouldn’t,” said Galli.

IRS lets people take more from IRAs

With the current economic volatility, the IRS has stepped in to help IRA holders. The IRS lets people withdraw up to $100,000 from their retirement accounts. The CARES(Coronavirus Aid Relief and Economic Security) Act says that spouses of account holders can also withdraw up to $100, 000 from their accounts. Jeffrey Levine is CPA and director of advanced planning at Buckingham Wealth Partners. He notes that the changes are helpful to account holders’ spouses.

“The spouse thing is pretty big. I had a lot of people in that camp, where the spouse was out of work and didn’t have significant retirement account assets,” said Levine.

Retirement plan consultant Denise Appleby says eligibility can help people who encounter economic difficulties.

“If you experience adverse financial consequences, because a member of your household, related to you or not, had their income adversely affected by COVID-9, you are eligible for the $100,000 coronavirus-related distributions,” she said.

Some financial advisors against extra Roth borrowing

While some financial advisors want their clients to take advantage of the new IRS rule, some disagree. Certified public accountant Ed Slott doesn’t think people should take extra funds out of their Roth IRA’s. He says the withdrawal now will lead to more taxes later.

“Remember, it’s still not a good thing: You’re taking your own money and you’ll owe the taxes,” said Slott.

Financial planner Mark Scribner also wants people to borrow from Roth IRA’s as a last resort.

“If you have investment accounts, you should think about liquidating taxable accounts first, traditional IRAs and 401(k)s second, and Roth IRAs last,” said Scribner.

“Consider taking money first from pre-tax accounts or traditional retirement accounts before Roth IRA accounts,” added Scribner.

“Evaluate a personal loan, depending on what type of interest rate you might build a qualify for,” said Poppy.

Poppy still advocates for IRA’s over other online trading apps.

“You have a little bit more flexibility since you can take out different shares, and you can really control the tax consequences a little bit better,” said Poppy.

While Poppy is against Roth IRA borrowing, he says people can borrow tax-free if they meet certain requirements.

“If taking from a Roth IRA, it can be beneficial since you can access your basis or contribution tax-free without penalties,” said Poppy.

Poppy says people should consult financial planners before borrowing from a Roth.

“Input from a good CPA and a good financial planner is really helpful. [They can help] you model it out in terms of what the impact long-term will be,” said Poppy.

Poppy also wants people to consider whether they can afford to replace the withdrawn funds later.

“The key thing to remember is that you are reducing your future retirement income. Do you have a plan to replenish that?”

Can a new administration change traditional IRAs?

The new election may bring new changes to traditional IRA’s. Presidential candidate Joe Biden has promised to reform traditional IRA’s in a new plan. His website had these details:

“Under current law, the tax code affords workers over $200 billion each year for various retirement benefits—including saving in 401k-type plans or IRAs. While these benefits help workers reach their retirement goals, many are poorly designed to help low- and middle-income savers—about two-thirds of the benefit goes to the wealthiest 20% of families. The Biden Plan will make these savings more equal so that middle class families can enter retirement with enough savings to support a healthy and secure retirement,” noted Biden’s website.

J. Mark Iwry is a nonresident senior fellow at the Brookings Institution. He said that the changes may not affect traditional IRA’s.

“Don’t assume the private pension tax expenditure would necessarily be a deficit reduction target in a Biden-Harris administration. The private pension system plays a unique role in our economy,” said Iwry.

The Tax Foundation noted that Biden’s plan will “shift some of the benefits of tax deferral in traditional retirement accounts toward lower- and middle-income earners with the goal of encouraging additional saving by those taxpayers.

Would auto-IRA’s replace Roth or traditional IRA’s?

Biden’s plan would also implement auto-IRA’s for workers whose employers don’t offer retirement accounts. Iwry said the new system will help traditional IRA’s.

“The pension tax expenditure will be even easier to defend when auto-IRA makes the system far more inclusive and progressive,” said Iwry.

Iwry noted that partisan politics hurt the chances of enacting the auto-IRA program.

“The Obama-Biden administration made auto-IRA the centerpiece of their retirement proposals, but then Obamacare was enacted,” Iwry continued. “The ensuing divisive politics and toxic partisanship meant it was no longer the right moment.”

However, Iwry believes that the idea can grow with some states enacting auto-IRA’s and have “been steadily acquiring proof of concept as seven states have enacted it; others are considering it, and three of those seven states have begun implementation, which is going smoothly,” Iwry said.

Iwry hopes that an act of Congress to enact nationwide auto-IRAs will help compliment Roth and traditional IRA’s.

“Congress can achieve nationwide uniformity with a federal auto-IRA that builds on, preserves and integrates the state auto-IRAs”, said Iwry.

Top 5 stocks for Roth IRA vs. traditional IRA

No matter which IRA a person chooses, they can choose these top stocks for investment.

1. Amazon

If some people want to invest their IRA, Amazon (NASDAQ:AMZN) is the best stock choice. During the pandemic, Amazon has become the go-to online marketplace. The e-commerce giant’s latest line of products, including its new Amazon Fire TV stick, will bring in new revenue. Amazon’s vice-president, Sandeep Gupta, spoke about the new Fire TV features.

“Today, you can search for comedies, or stuff by Tom Cruise, but we’ve tried to make a landing spot for when you don’t know what you want to watch. This shows you stuff that’s free, movies and TV shows, broader categories, apps and more,” said Gupta.

Financial expert Puja Tayal noted that Amazon’s varied revenue streams like grocery delivery and cloud technology make it an attractive investment for Roth vs. traditional IRA’s.

“AMZN’s biggest win was its entry in grocery. Grocers were reluctant to go online. But the lockdown forced people to buy almost everything online. AMZN increased its grocery delivery capacity by over 160% to cater to the threefold surge in online grocery demand,” wrote Tayal.

“The e-commerce giant also saw a 29% year-over-year surge in Amazon Web Services (AWS), as companies shifted their work to the cloud to facilitate remote working. Moreover, it saw a 29% uptick in its subscription services like Amazon Prime videos,” added Tayal.

CNBC financial analyst Jim Cramer also rates Amazon as a buy for retirement accounts.

“I don’t care that it’s up 50% for the year, it has more catalysts than nearly any other stock under the sun: new revenue streams, great balance sheet, stay-at-home economy exposure and, of course, 5G. Now that it’s come down from its highs … I think you have to buy it,” said Cramer.

Amazon is a top stock for Roth and traditional IRA’s.

2. Netflix

Netflix( NASDAQ: NFLX) is a growth stock that is a great investment for Roth or traditional IRA’s. Because of the worldwide quarantine, many people stayed home and binge-watched Netflix shows like Tiger King. Netflix’s chief financial officer, Spence Neumann, spoke about the streaming company’s future.

“So Netflix 2021 is going to be a much better service than Netflix 2020, which gives those newer members and existing members even more reason to stay highly engaged and stick around and also to entice future members to join. So we think that the growth opportunity is as big as ever. There’s just that kind of near-term pull forward that you’re seeing,” said Neumann.

Financial analysts bullish on Netflix stock

With Netflix’s popularity and international expansion, Jefferies analyst Alex Giaimo says Netflix stock is a buy.

“While the soft third-quarter outlook may put the stock in the penalty box near-term, there is no change to our positive long-term thesis. We view Netflix as a consistent high double-digit growth story with sizable margin expansion over time,” said Giaimo.

Netflix is a top stock for Roth and traditional IRA investment because of its growth.

3. Apple

In addition to Netflix, Apple (NASDAQ:AAPL) is a stock that outperformed during the COVID-19 crisis. Apple’s chief financial officer Luca Maestri touted the tech company’s Q2 2020 results.

“So the revenue for the quarter was $58.3 billion, up 1% from a year ago, despite the extreme circumstances from the impact of COVID-19 and a headwind of 100 basis points from foreign exchange,” said Maestri.

Maestri also spoke about Apple’s growing Services profits.

“Services revenue followed a different trend with very strong year-over-year growth of 17%. We set a new all-time revenue record of $13.3 billion, with all-time records in many of our Services categories and in most countries we track,” said Maestri.

With its potential bundling of services like Apple TV+ and Apple Music, Morgan Stanley analyst Katy Huberty rates Apple stock a buy.

“We have long argued that bundling services is a unique tool that Apple has at its disposal,” said Huberty.

UBS analyst David Vogt says Apple stock could rise if the revenue increases in the future.

“If several of Apple’s under monetized Services live TV+, and News mature and contribute to a segment revenue reacceleration back to 17% growth the next three year FY23, consolidated revenue could come in $13 billion higher than our forecast,” added Vogt.

With Apple’s new products, Apple is a stock that can be an impressive investment for Roth or traditional IRA’s.

4. Microsoft

With its established reputation in tech, Microsoft (NASDAQ: MSFT) is a top stock for Roth or traditional IRA investment. The company wants to increase its gaming division with its purchase of Bethesda Softworks’ parent, ZeniMax. Joost van Dreunen, founder of video game investment firm New Breukelen, said the deal will help Microsoft’s stock.

“The ZeniMax acquisition instantly increases the value of GamePass and closes the content gap between Xbox and [PlayStation]. It raises the barriers to entry for aspiring new contenders like Amazon and Google,” said van Dreunen.

Wedbush’s Dan Ives also believes the acquisition will boost Microsoft stock.

“While Xbox and gaming have been successful, [Microsoft] recognizes its need for consumer based revenue growth, which we believe this deal will directly help drive along,” wrote Ives.

In addition to Wedbush, Amana Mutual Funds also rates Microsoft a buy.

“Microsoft has done an excellent job building its Azure cloud services business, while we believe a strong period of semiconductor demand will arrive in the new decade supporting Microchip and Taiwan Semiconductor. Whether the rally starts in 2020 or 2021 remains to be seen but recent signs have been positive,” said Microsoft.

Microsoft is a top stock for Roth and traditional IRA investment.

5. Spotify

In the music streaming world, Spotify (NYSE:SPOT) is king. The streaming service’s growth during the COVID-19 pandemic helped the company increase its subscriber growth. Spotify spoke about its Q2 2020 results.

“After making adjustments to help us weather the pandemic in Q1, consumption returned to normal levels this quarter. Monthly active users increased to 299 million, and subscribers grew to 138 million, both exceeding our expectations. Advertising revenue, which took a significant hit in Q1, improved notably throughout the quarter, and we feel good about our momentum as we enter Q3,” said Spotify.

Financial analysts say Spotify could be top stock for Roth or traditional IRA

Bernstein analyst Todd Juenger said Spotify’s stock should rise with the addition of popular podcaster Joe Rogan. His Joe Rogan Experience podcast will be part of Spotify’s podcast collection.

“The market has added $20B of value to Spotify since the Joe Rogan podcast announcement…However, the analyst continue to believe it is unlikely that Spotify will generate much earnings from podcasts. He sees 37% potential downside in Spotify shares at current levels,” said Juenger.

In addition to Joe Rogan and former first lady Michelle Obama’s podcasts, Spotify’s ad revenue should drive its stock up as well.

“The stock is up sharply since the Joe Rogan podcast deal in mid-May, but there is further upside as podcasts help Spotify drive ad revenue on owned and licensed content, premium subscriptions and gross margins,” said Juenger.

Spotify is a stock with great potential in a Roth or traditional IRA.

Roth vs. traditional IRA’s can be good choice for investors

Whether a person chooses a Roth vs. traditional IRA, investors can sure that either retirement account will help increase wealth. If a person wants to choose the best stock for retirement account investment, they can practice trading those stocks on TradingSim. TradingSim’s blogs and charts can help people find the best stocks for their Roth or traditional IRA investments.

For people with high incomes, Roth IRA’s may be inaccessible. However, there is another option- a backdoor Roth IRA . This TradingSim article will help readers understand how to use backdoor Roth IRAs. In addition, this article will also help investors find the best companies offering alternative retirement accounts in this bull market.

What is a backdoor Roth IRA?

In order to contribute to a Roth IRA in 2020, a person’s income must be below $139,000 if they’re single. Married high-income people must have an income below $203,000. For high-income people, there is the option of a backdoor IRA.

Ajay Sarkaria is a vice president of advanced planning at Fidelity. He noted that the IRS lets high-income people make that conversion.

“The IRS made it pretty explicit that this is a permitted technique, and it is quite commonly utilized by many of our clients,” said Sarkaria.

Christine Russell is the senior manager of retirement and annuities for TD Ameritrade. She notes that high-income investors can save more with backdoor Roth IRAs.

“The backdoor Roth IRA makes it possible for investors to tweak the rules a bit. If you have a traditional IRA, you can convert funds into a Roth IRA, whatever your income level,” said Russell.

Fred Egler is a certified financial planner at Betterment. He says that backdoor IRA’s are a good option for high-income earnings.

“They are a great way for high income individuals to get money into a Roth IRA without contributing directly to one because of the income cap,” says Egler.

Financial IRA expert explains backdoor Roth IRA benefits

IRA expert Ed Slott explained how to open a backdoor IRA.

“You contribute to a traditional non-deductible IRA as long as you have earnings and then convert it to a Roth, since anybody can convert. There is one caveat though, not everybody can contribute to a traditional non-deductable IRA. First, you have to have earnings, and with traditional IRAs you can’t contribute after you are 70 1/2. You can with a Roth but you can’t with a traditional. So, if you are listening to this and you are 75, that tactic won’t work for you,” said Slott.

Slott also explained what to do if a person has extra traditional IRA assets.

“What happens is, if you do a nondeductible, you have to do what’s called, it’s a little technical, a pro-rata calculation. In other words, you can’t just, and this is a question we get a lot so I am glad you asked, some people say well if I do a non-deductible IRA say for $5,000, can I just convert the $5,000 and pay no tax? Not if you have other IRAs because all of your IRAs by tax rules are considered one. So, if $5,000 was only 5% of your whole IRA, only 5% would be tax-free. You have to do a percentage for every dollar you convert,” said Slott.

What do financial experts say about the backdoor IRA?

Victor Carlstrom is CEO of Vinacossa Enterprises Group based in New York. He said that financial advisors in addition to SEP IRAs, they should tell their clients about the backdoor IRA choice.

“Advisors should encourage most of their clients that exceed the contribution income limits to open Roth IRAs through the backdoor process. The benefits of tax-free growth and withdrawals are exceedingly powerful,” said Carlstrom. “And the flexibility that comes with Roth IRAs opens multiple estate planning and retirement pathways,” said Carlstrom.

There are restrictions on Roth IRA contributions and the stretch IRA essentially ended. However, the 2017 Tax Cuts and Jobs Act enables people to make a contribution to a traditional IRA. Then, an account holder can convert the IRA to a Roth.

“Although an individual with [adjusted growth income] exceeding certain limits is not permitted to make a contribution directly to a Roth IRA, the individual can make a contribution to a traditional IRA and convert the traditional IRA to a Roth IRA,” stated the act.

How does a person know if a backdoor Roth is right for them?

Christine Russell is the senior manager of retirement and annuities for TD Ameritrade. She spoke about which situations may be best to use a backdoor Roth IRA.

“If you expect to owe a little less in taxes for the year, and you can handle the tax bill for a Roth conversion now, it might make sense. You pay taxes now, but later on, if taxes go up or if you’re in a higher bracket, you don’t have to pay taxes on your Roth withdrawals. And you won’t have to take any required minimum distributions (RMDs) from your Roth IRA once you reach age 70 1/2,” said Russell.

“Avoiding RMDs during your lifetime may allow you to leave more assets to your heirs, because they won’t be taxed on the Roth IRA assets that they inherit, either,” added Russell.

What are other advantages to making a backdoor Roth IRA conversion?

For people who are retiring, there is a chance to reap benefits from a Roth conversion. Because of the CARES ACT, there is a change in required minimum distributions. There is a new waiver on the required minimum distributions.

“This year is an unprecedented opportunity,” says Maria Erickson, a financial advisor at Freedom Financial and Business Planning in Tampa, Fla. “The numbers are pretty compelling. You can reduce your tax bill by 30% to 40%.”

Can the CARES Act help people who have retirement funds?

The recent CARES (Coronavirus Aid, Relief, and Economic Security) Act lets people withdraw funds from a backdoor IRA if they lose their jobs because of COVID-19 related reasons. However, not all employer retirement plans will allow the withdrawals. Charlie P. Nelson is the chief executive officer of Retirement and Employee Benefits for Voya Financial, Inc. He explains that there are employers who won’t accept early IRA withdrawals.

“Not all retirement plans will accept the CARES Act provisions for COVID-19 related hardships. The provisions are entirely within the purview of the retirement plan, so participants must check first to see what their plan sponsor offers,” said Nelson.

When is a backdoor Roth conversion a bad idea?

While many high-income people want to make Roth conversions, there may be a downside if a person doesn’t have the extra funds to pay taxes.

Dan Stolfa is the managing director, wealth and fiduciary adviser at Evercore Wealth Management. He said that there can be tax consequences for older high-income people.

“In the year of a Roth IRA conversion, the full amount of the withdrawal is included in taxable income and a large conversion can easily push someone from a lower tax bracket into the highest tax bracket. The break-even point on paying significant taxes can take years or even decades to reach. If that tax burden is paid from IRA assets, it will take even longer,” said Stolfa.

He advised an older client like Lyn not to make the conversion to a backdoor Roth IRA.

“For most people like Lyn who are past RMD age and are using IRA assets to fund living expenses, large-scale conversions don’t make sense,” said Stolfa.

What are other disadvantages to Roth conversions?

When a person is making a conversion to a Roth IRA before converting to a backdoor IRA, there can be disadvantages.

“The shorter the time period, the less advantageous the Roth conversion can be, because the tax-free growth has less time to compound and grow,” said Fred Egler, a financial planner.

“Once you do a Roth conversion, it’s irreversible. If you’re going to do one, you should certainly make sure it’s for you, ” added Egler.

Are there alternatives to backdoor Roth IRAs?

While a backdoor Roth IRA may be a retirement planning strategy for high-income people, Russell says there are alternatives.

“If you want Roth benefits, there are other alternatives,” Russell pointed out. “You might be able to contribute to your workplace 401(k) if it allows Roth contributions, or open an individual/solo 401(k) with Roth contributions if you own your own business—even as a freelancer or side gig,” said Russell.

“There are no income limits on Roth 401(k) eligibility, and the contribution limits are much higher than what you see with IRAs: $19,000 versus $6,000 for 2019,” added Russell.

How does a person open a backdoor Roth?

A person can use a backdoor Roth IRA as a strategy to build for retirement. In a backdoor IRA, a person opens a traditional IRA. After that, a person can make non-tax-deductible contributions to the account. Then, it converts into a Roth IRA. David Desmarais is a certified public accountant. He explained how people can create a backdoor Roth IRA.

“You can make a nondeductible IRA contribution and immediately roll it over into a Roth. The reason why you roll it over immediately is if there are no earnings in the IRA,” said Desmarais.

“Before it is rolled into a Roth, there is no income to pick up on the conversion,” added Desmarais.

What are the step-by-step instructions for a backdoor Roth?

When an account holder wants to make a backdoor Roth conversion, these are the key steps:

An account holder should put after-tax funds into a traditional Roth. If an account holder uses after-tax funds, there will be fewer assets in the IRA to tax.
Then, an account holder can make a non-deductible contribution to a Roth. The contribution limit for 2020 is $6,000 for account holders under 50. For account holders over 50, the limit is $7,000.
Next, keep the account in cash to avoid more taxes.
Wait for a statement from an account holder’s IRA provider.
Then, rollover IRA funds into a Roth before the end of the year.
After that, an account holder has to report the conversion on IRS Form 8606.
Repeat these actions every year.

What are the implications of a Roth IRA conversion?

Nick Defenthaler is a partner at the Center for Financial Planning in Southfield, Michigan. He advises clients to keep their funds in cash if they’re not converting their IRA into a Roth right away “to avoid any earnings on the funds prior to the actual conversion.”

John Knolle is principal at Saranap Wealth Advisors. For existing IRAs with large pretax balances, a conversion to a Roth IRA could bring more expenses. He noted it’s “because after-tax contributions are converted pro-rata to the overall balance.”

How to Invest — Backdoor Roth IRA can have tax consequences

“This is known as the ‘cream in the coffee’ rule,” said Knolle. The “cream in the coffee” or pro rata rule means that before-tax and after-tax funds can’t be separated.

He adds the cream in the coffee rule is “meaning once after-tax dollars are mixed with pretax dollars, it’s impossible to separate the two,” said Knolle.

How do multiple IRAs impact backdoor Roths?

Timothy Wyman is a financial advisor that is a managing partner at Center for Financial Planning. He warns his clients that there can be consequences for retiring clients doing a backdoor conversion in January. If a client retires in July and rolls the 401k into a backdoor IRA, there is an “aggregation rule”. In the aggregation rule, the IRS treats multiple IRA accounts as one.

“That will likely result in tax associated with the backdoor conversion you completed earlier in the year,” said Wyman.

What are the tax implications of a backdoor IRA?

In addition to Wyman, Russell noted that there are taxes that must be paid if there are Roth IRA conversions. While a backdoor Roth IRA may bring benefits, taxes still must be paid.

“If you got a tax deduction for making your traditional IRA contributions, you’ll need to pay taxes on the amount you convert over to the Roth IRA. If your IRA assets originally came from a workplace plan, like a 401(k) or SEP IRA, you have not been taxed on some or all of that money yet, either. So, converting that to a Roth IRA will also require you to pay taxes,” said Russell.

Research key to starting backdoor Roth IRA strategy

Because of the aggregate rule that Wyman noted, Russell also thinks that people should consider the implications of owning multiple IRAs . He said that when they want a backdoor Roth conversion, they should consider their financial situation.

“This is where you really have to think about the situation, because you owe taxes based on your total IRA balances,” said Russell. “You can’t just focus on the IRA that you’re using for the backdoor Roth.”

“Having different types of IRAs can change the equation”, said Russell.

“So, it’s important to talk to a professional before you decide to move forward with a backdoor Roth,” said Russell.

Should an account holder have a traditional and backdoor Roth IRA?

Jason Grantz is the director of Institutional Retirement Counseling at Unified Trust Company. He notes that both accounts may not have one tax advantage over another.

“It hasn’t been proven that tax-deferred growth is better or worse [than tax-free growth]. Only time will tell,” said Grantz.

In addition, Grantz recommends that account holders have a traditional and Roth account so they don’t have to have the same tax liability.

“That basically means building both traditional and Roth accounts over the course of your working years, so you have options to pick from”, said Grantz.

The accounts are “buckets that are treated differently from a tax perspective,” added Grantz.

Financial experts advise people who want to use backdoor Roths

If people want to open a backdoor IRA, Russell also recommends that traditional IRA holders get an IRS form to keep their different IRA accounts organized.

“And get all your records in order, so you reduce surprises. If you do have nondeductible contributions in your traditional IRA, you need to keep track of them on IRS Form 8606. “Otherwise, you may eventually be taxed on money you already paid tax on,” said Russell.

If people want to make a backdoor Roth IRA conversion, Russell has advice for those account holders. She urges them to consult a financial advisor to understand the tax consequences.

“Not everyone is going to benefit from a backdoor Roth IRA,” said Russell. “Before you move forward, make sure you understand the tax consequences and know what you’re getting into. The rules of a backdoor Roth contribution are often oversimplified.”

How long should a person wait to open a backdoor Roth?

While there are different times to wait to use a backdoor Roth IRA strategy, some financial experts say that there is no one special time. Christine Benz, Morningstar’s director of finance, said that account holders don’t have to wait too long to have a backdoor Roth IRA.

“But I think that there’s starting to be a consensus view that you don’t have to wait very long at all. In the past, there was some worry that, well, has the IRS really blessed this maneuver,” said Benz.

“But now I think that tax experts such as Ed Slott, for example, who focuses a lot on IRAs, thinks that you can do it pretty quickly, that you don’t have to wait very long,” added Benz.

“And the beauty of that is that you can get the money working in long-term assets,” said Benz.

In addition, Benz notes that “because you are not worried about any capital appreciation and taxes due between the time of funding and conversion.”

How can people open a mega backdoor Roth IRA?

In addition to a backdoor Roth IRA, there is a mega backdoor Roth IRA. That account is like a backdoor Roth on steroids. In a mega backdoor Roth, people who have a 401k that allows after-tax contributions. With a mega backdoor Roth IRA, high-income people can contribute up to $37,000 to a Roth. After an after-tax contribution to a traditional IRA, the IRA can be converted into a backdoor Roth.

However, with a backdoor Roth IRA, an employer’s 401k may have to return the excess contribution. Some employers state that high-income IRA holders can’t save more than lower-income account holders.

Mark Luscombe is a principal analyst with Wolters Kluwer Tax & Accounting. He explained how Congress made that rule.

“Congress decided that, if they were going to give tax breaks for employer-sponsored retirement plans, those companies could not discriminate against lower-compensated employees,” said Luscombe.

What are the tax implications of a mega backdoor Roth IRA?

Myra Wealth management advises clients on the tax implications of a backdoor Roth IRA.

“If your after-tax contributions have grown before you do the in-service rollover, you will be subject to tax when you roll over those funds. If you are doing the transfers frequently, then your tax bill should not be significant,” said Myra.

“Some companies allow you to roll over as frequently as every pay period. If your employer does not allow in-service withdrawals, you can still do the Mega Backdoor Roth but you will have to do it when you leave the employer, in which case you are likely to have some taxable earnings and possibly a larger tax bill,” added Myra.

How can a person get out of a backdoor IRA?

If a person wants to get out of a backdoor IRA, they can have another option. Morningstar’s Christine Benz explained how to get out of a backdoor IRA.

“They can recharacterize the conversion–that is, switch the newly converted Roth assets back to Traditional IRA status, which effectively undoes the conversion and any tax implications associated with it. After that, they could hang on to the Traditional nondeductible IRA or remove the pretax assets from the IRA kitty by rolling them into an employer’s plan as described above and then have another go at a backdoor Roth IRA,” said Benz.

Benz notes that people should use caution before changing their IRAs.

How do backdoor Roth IRA’s affect families?

If a person wants to make a conversion to a backdoor Roth IRA, there may be an impact on an account holder’s heirs. Dara Luber is the senior manager of retirement product at TD Ameritrade. Luber noted that the recent passage of the SECURE Act have changed how beneficiaries inherit IRA’s.

“A big piece of the SECURE Act is changing how nonspouse beneficiaries inherit IRAs,” said Luber. “Before, you could take distributions over a lifetime, but now you have to do it in 10 years, creating a potentially bigger tax bill for heirs.”

While there are original tax liabilities, there could a lessened burden for an account holder’s beneficiaries.

“The original owner takes the tax hit, but when they pass, the taxes are already paid,” said Luber. “It could be attractive for those who want to get rid of the tax bite on behalf of their children.” The kids must take RMDs but get to skip the taxes.

Financial expert Bill Bishoff noted that the current environment will provide a tax break for some account holder.

“If you do a Roth conversion this year, you will be taxed at today’s “low” rates on the extra income triggered by the conversion. And you will avoid the potential for higher future tax rates (maybe much higher) on all the post-conversion income and gains that accumulate in your new Roth account. That’s because Roth withdrawals taken after age 59½ are totally federal-income-tax-free, as long as you’ve had at least one Roth account open for more than five years when withdrawals are taken,” said Bishoff.

If you leave your Roth IRA to an heir, he or she can take tax-free qualified withdrawals from the inherited account as long as it has been open for more than five years.

How do backdoor Roth IRA’s impact heirs’ taxes?

If an account holder wants to ease their heirs’ burden, a backdoor Roth conversion could be key. David Robinson is the founder of RTS Private Wealth Management. He said that the backdoor Roth IRA can help a person’s beneficiaries.

“A Roth conversion might be a good option, not only to minimize heirs’ tax burden but also to sustain the growth of your retirement nest egg,” said Robinson.

Financial expert Jeff Brown notes that certain considerations must be considered before heirs can inherit an IRA.

“Basically, the decision hinges on the same issue that confronts all TIRA[ traditional IRA] investors: tax brackets now and in the future. Because tax must be paid on converted sums, it boils down To paying tax at today’s rates by converting to a Roth, or paying at a future rate by keeping the TIRA,” said Brown.

He noted that if an heir will earn more than an account holder, then a Roth IRA can make sense.

“If the heir is likely to be in a higher tax bracket than you are today, a conversion could make sense. You’d pay at today’s low rate so your heir would not have to pay at a higher rate later. If the heir’s rate is likely to be lower than yours, it probably would make sense to keep the TIRA,” wrote Brown.

Will there be an increase in backdoor Roth IRA’s?

Ryan P. Costello is a financial expert. He believes that with this economic volatility, many more people will open Roth IRAs.

“The percentage of our clients that do Roth conversions is going to increase dramatically this year,” said Costello.

Certified financial planner David W. Mullins said that Roth IRA’s can help owner make better tax planning.

“What this means to the owner is potentially more efficient tax planning in retirement, more time for the account to keep growing and a larger nest egg to pass on,” said Mullins.

Henry Luong Hoang is a certified financial planner. He suggests that people who want to pass money on to heirs should pick a Roth IRA.

“As a hedge, if you have the ability to pay reasonable tax rates to convert your IRA today, there is a very low chance you will regret future tax-free distributions,” said Hoang.

Which five stocks are best for a backdoor Roth IRA?

If a person wants to invest their backdoor IRA into stocks, there are five stocks that could be a good choice for account holders. Here are some choices for investment.

1. Amazon

Amazon(NASDAQ: AMZN) stock is a golden stock to invest in with a Roth IRA. Amazon had a phenomenal Q2 2020 as many people are ordering more goods online. The online behemoth had a whopping $89 million in revenue in Q2 alone.

“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” said Amazon CEO Jeff Bezos in a statement.

Amazon CFO Brian Olsavsky said the company is still expanding and will increase inventory in the future.

“As we move into Q3, we need to build more inventory for Q4. We’ve got our hands full on that challenge, but we’ve got a really good team that’s been working very hard probably since late February on this issue,” said Olsavsky.

Amazon is the top stock for people who want to invest their backdoor Roth IRA’s.

2. IBM

In addition to Amazon’s strong showing as a growth stock, IBM(NYSE:IBM) is a strong dividend stock for IRA investment. IBM’s 4% dividend makes it a relatively reliable stock for IRA investment.

IBM’S chief financial officer Jim Kavanaugh spoke about the results.

“Our balance sheet remains strong and we continue to have ample liquidity. The external dynamics we saw in March continued into the second quarter with varied impacts by region and industry. As we discussed in April, we are not immune to the macroeconomic environment. But our client and our portfolio mix provide some stability in our revenue, profit and free cash flow,” said Kavanaugh.

IBM stock good for backdoor Roth IRA investment

IBM’s cloud technology helped the company’s revenue rise 30% in Q2 2020. Kavanaugh spoke about that growth.

“In cloud and data platforms, revenue was up 30%. This reflects the synergy of bringing IBM and Red Hat together as we standardize on Red Hat OpenShift as our hybrid cloud platform and modernize our software portfolio to run on it,” said Kavanaugh.

“This quarter, we had good performance across Red Hat, including amplified bookings growth in the 30 underpenetrated countries where IBM has helped Red Hat expand go-to-market efforts over the last year. And with further cloud pack traction this quarter, clients are embracing a hybrid cloud strategy and increasingly leveraging the OpenShift container platform,” added Kavanaugh.

IBM is a top stock for people who want to delve into IRA investment.

3. AT&T

AT&T(NYSE:T) is another dividend stock that people can invest in to increase their IRA. With a strong 7% dividend yield, AT&T is a good choice for account holders. John Stankey, AT&T’s CEO, spoke about the results.

“Our solid execution and focus in a challenging environment delivered significant progress in the quarter, most notably the successful launch of HBO Max, resilient free cash flow and a strengthened balance sheet,” said Stankey.

AT&T is also a strong stock because of its cash flow.

“Our resilient cash from operations continues to support investments in growth areas, dividend payments and debt retirement. We are aggressively working opportunities to sharpen our focus, transform our operations and continue investing in growth areas, with the customer at the center of everything we do,” said Stankey.

4. Microsoft

With 25 years of being a top stock, Microsoft (NASDAQ: MSFT) is a stock that many people can choose for their IRA. Microsoft’s Q2 2020 earnings show that the stock is still a solid choice for investors. CEO Satya Nadella spoke about Microsoft’s positive results.

“We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers’ success. Along with our expanding opportunity, we are working to ensure the technology we build is inclusive, trusted and creates a more sustainable world, so every person and every organization can benefit,” said Nadella.

Amy Hood, Microsoft’s chief financial officer said cloud technology helped Microsoft maintain its high revenue.

“Strong execution from our sales teams and partners drove Commercial Cloud revenue to $12.5 billion, up 39% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

5. Coca-Cola

If investors have a backdoor Roth IRA, Coca-Cola( NYSE: KO) is a top stock as well. Legendary investor Warren Buffett invests in this established company with a 4% yield. While the pandemic shut down Coca-Cola’s profits for a while, the revival of the economy may help Coca-Cola be sold at re-opening restaurants. CEO James Quincey was optimistic about the beverage company’s future.

Coca-Cola stock a good pick for backdoor IRA investment

“In many ways, the future is coming at us faster than ever. We are embracing the changes and pivoting our business to take advantage of new opportunities. We are poised as a system to accelerate our transformation to return to driving growth in years to come,” said Quincey.

Coca-Cola is a robust stock for IRA investment.

Backdoor Roth IRA’s can help people save and grow money

Backdoor IRA’s can be a useful tool for high-income people. The accounts can help people save more and pass on their heirs. If people want to find to find stocks to invest in with their IRA’s, TradingSim can help investors. By practicing stock trades, IRA holders can help find the best stocks for their backdoor Roth IRA’s.

When investors are choosing between stocks vs. ETF’s, QQQ(NASDAQ:QQQ) can be an excellent ETF(exchange-traded fund) choice for new investors. In this TradingSim article, I’ll explain why QQQ stock can be a great addition to investors’ portfolios. This article will also explain what top 10 holdings in QQQ are the best for investors who want to start early investing.

What is QQQ stock?

The Invesco QQQ is a popular ETF that tracks the NASDAQ 100, which is full of tech growth stocks. If investors want to own many tech stocks at once, they can choose QQQ stock that holds many tech stocks. The QQQ stock has $120 billion in assets.

What is TQQQ stock?

In addition to QQQ stock, investors can buy TQQQ stock (NASDAQ:TQQQ). The leveraged ETF uses debt and derivatives to increase the returns of the NASDAQ 100. When investors use leverage to track the TQQQ, they can use borrowed capital to buy assets to make the price movement impact grow.

For example, the TQQQ tracks the NASDAQ 100. If the NASDAQ 100 moves up 1%, a regular ETF moves up 1%. However, with a leveraged ETF like TQQQ, a trader can have a 2 or 3% gain if the NASDAQ 100 rises.

Financial expert David Kreinces from ETF Portfolio Management notes the strong performance history of the TQQQ stock.

“The historical performance data strongly favors the Nasdaq-100 3x (TQQQ) for core equity exposure. The unleveraged Nasdaq-100 (QQQ) appears to be the “next-generation S&P 500” and adding moderate leverage can be priceless at times. “In fact, TQQQ returned 80x your money over the past 10-years, while the S&P 500 delivered just under 3x, or 285% in total return,” wrote Kriences.

Kriences advocates that investors who want to choose high-risk ETF’s can pick TQQQ.

“Past performance can never guarantee future results, but a continuation of the TQQQ growth rate above would turn $500 into $2 million within 19 years. Even if the TQQQ rate of return falls by half, to 28% annualized, a $500 investment could still reach $2 million in 34 years. Given this extraordinary long-term growth potential, we named TQQQ the ‘American Dream ETF, ” wrote Kreinces.

ProShares advise caution about TQQQ

While Kreinces says investors should buy TQQQ, buying leveraged ETF’s can be risky for investors. Even the TQQQ issuer ProShares warns traders that keeping the TQQQ stock too long can increase risk.

“Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks,” noted ProShares.

While investing in TQQQ can have a huge payoff, traders should still exercise caution when buying the ETF with leverage.

Why should investors buy QQQ stock to track the NASDAQ 100?

If investors are interested in QQQ stock, they’re making a good choice since it follows the NASDAQ 100. The NASDAQ 100 has some advantages over the Dow Jones. While the Dow Jones only has 30 stocks, the NASDAQ 100 has three times as many stocks in its index. As the Dow Jones changes the stocks in its index, the NASDAQ 100 doesn’t have human input into which stocks are in that index.

In addition to being more rules-based, the NASDAQ 100 is outperforming the Dow Jones. While the Dow Jones had a volatile year, the NASDAQ 100 soared. As Sarah Ponzcek noted in Bloomberg, large-cap tech stocks are a strong buy.

“Last year, when the economy and earnings were booming, the Nasdaq 100 Index put together its best rally in a decade, rising 38%. In 2020, amid a raging recession and plunge in profits, it’s doing a little less well: up 37%,” wrote Ponzcek.

“Megacap tech firms have emerged as unshakable market leaders. Adored for their sturdy balance sheets and business models that not only hold up in a lock-downs but excel, the Nasdaq 100’s performance is making history by the day,” added Ponzcek.

Here are 10 of QQQ’s top tech holdings that are part of the ETF.

1. Amazon

Amazon (NASDAQ:AMZN) is a QQQ holding that had an incredible last quarter. The e-commerce behemoth reaped $89 billion in profits during the nationwide quarantine. As people stayed home, they ordered from the company’s website in record numbers. Because of the massive increase in Amazon’s revenue, CEO Jeff Bezos’ net worth ballooned to $200 billion. During the Q2 2020 earnings report, Bezos spoke about the results and how the company was contributing to keep workers safe during the COVID-19 pandemic.

“As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand—purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefits, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners,” said Bezos.

Bezos tried to quell the controversy about Amazon having temporary, part-time workers by speaking about the full-time employees the company added.

“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions,” said Bezos.

In addition, Bezos touted how much money Amazon pumped in to the economy.

“Third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS [Amazon Web Services],” said Bezos.

Amazon wants to increase empire with wearables

With its dominance in e-commerce, Amazon wants to get into the $50 billion fitness tracker market. Amazon is launching its Halo device to sell to consumers. Halo’s vice-president, Melissa Cha, spoke about the research that went into developing the Halo wearable.

“We did a global search to find the best experts. We found cardiologists, fitness experts, and people who had spent their careers researching sleep and wellness,” said Cha.

Analysts say Amazon is a top QQQ holding

Because of its meteoric growth, Daniel Salmon, an analyst at BMO Capital Markets rates Amazon a buy. He said that Amazon’s “long-term opportunity is stronger than ever, and we also continue to see outperformance over the next 12 months.”

In addition to BMO Capital, Wedbush is bullish on the e-commerce stock. Wedbush analyst Michael Pachter wrote in a note to clients the consumer demand led to a short-term strain on Amazon’s supply.

“Consumers are clearly spending more of their time and money shopping online in order to avoid crowds, driving the supply shortages and delivery delays on non-essential items that Amazon has disclosed in [April],” wrote Pachter.

Canaccord’s Maria Ripps said the continued increase in online shopping should help Amazon’s stock in the long term.

“Over the long-term, we[Canaccord] anticipate that the COVID-19 pandemic will accelerate existing eCommerce trends, benefitting platforms such as Amazon,” said Ripps.

Ripps also sees growth from its Amazon Web Services.

“For AWS, we [Conaccord] see revenue growing 36% year-over-year (vs. 34% in Q4) as demand for cloud computing also spiked in Q1 due to COVID-19, leading to pricing power that should drive AWS operating margin back to 27% (vs. ~26% in full year 2019),” said Ripps.

Amazon is a high-performing part of QQQ’s stock holdings.

2. Google

Google parent Alphabet (NASDAQ:GOOG) is another profitable QQQ holding. Google’s Q2 2020 earnings slightly dipped from last year with $38 billion in revenue. However, Google is still performing well overall. CEO Sundar Pichai spoke about how more people used Google services more during the quarantine.

“We’re working to help people, businesses and communities in these uncertain times. As people increasingly turn to online services, our platforms — from Cloud to Google Play to YouTube — are helping our partners provide important services and support their businesses,” said Pichai.

Ruth Porat, Google’s chief financial officer, also spoke about Google’s success with cloud technology.

“In the second quarter our total revenues were $38.3B, driven by gradual improvement in our ads business and strong growth in Google Cloud and Other Revenues. We continue to navigate through a difficult global economic environment,” said Porat.

Google a buy to some analysts

Financial expert Maria Ripps thinks that despite a decline in ad revenue, Ripps says the stock is a buy.

“Somewhat offsetting these advertising trends, we also see COVID-19 likely driving heightened demand for cloud computing as some online businesses see a surge in demand from increased time spent at home while others are forced to migrate systems and employees to remote operations,” said Ripps.

Google is a strong holding in QQQ’s ETF.

3. Apple

In addition to Google, Apple (NASDAQ:AAPL) is a QQQ top holding. The tech giant’s Q3 2020 earnings report surpassed expectations with $59.7 billion in revenue.

CEO Tim Cook spoke about the company’s results.

“Our June quarter performance was strong evidence of Apple’s ability to innovate and execute during challenging times. The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories. We grew EPS by 18% and generated operating cash flow of $16.3 billion during the quarter, a June quarter record for both metrics,” said Cook.

Cook also spoke about Apple’s efforts to contribute its profits to social change measures.

“This is a challenging moment for our communities, and, from Apple’s new $100 million Racial Equity and Justice Initiative to a new commitment to be carbon neutral by 2030, we’re living the principle that what we make and do should create opportunity and leave the world better than we found it,” said Cook.

Apple stock split may help QQQ stock grow

Apple recently announced a four-for-one stock split to make the stock more affordable to investors.

“The Board of Directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Apple shareholder of record at the close of business on August 24, 2020, will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020,” said Apple in a statement.

Morgan Stanley’s Katy Hubert spoke about the Apple stock split.

“In the 3 and 6 months following past stock split, Apple shares have also outperformed the S&P 500, albeit by a lesser degree – by a median of 700bps and 610bps, respectively (1). The most significant post-split outperformance came in C2H14 after the 7-for-1 stock split (2), although this period also coincided with strong outperformance of the iPhone 6,” said Hubert.

Hubert also noted that the stock split may not be as influential on Apple stock as a future iPhone. However, she sees that the stock split will help the company’s stock.

“Nevertheless, we don’t believe the stock-split will be a “sell the news” type of event among institutional investors given the increasing expectations for the fall iPhone launch, and therefore the increase in retail demand following Monday’s stock split is more likely to be a positive catalyst for Apple shares, in our view,” said Hubert.

“Following Apple’s 4-for-1 stock split, we’d expect near-term retail demand for Apple shares to increase, especially given the current market environment (retail traders have accounted for up to 25% of stock market activity during the pandemic vs. 10% in 2019, although we’d note that retail investors have already been able to buy fractional shares, so the overall retail impact may not be as overwhelming as some perceive,” added Hubert.

Apple’s stock soared 30% after the stock split announcement. In QQQ stock, Apple is a valuable holding.

4. Tesla a key QQQ stock holding

Tesla (NASDAQ:TSLA) is a valuable holding in QQQ stock. The company has become the most valuable car corporation worth $209 billion.

Tesla has strong Q2 2020 earnings report

In its latest revenue report, CEO Elon Musk spoke about the company’s $6 billion in revenue.

“First of all, I’d like to thank the Tesla team for exceptional execution in the second quarter despite tremendous difficulties. They’ve done an incredible job, and it’s an honor to work with such a great team. I mean, there were so many challenges, too numerous to name, but they got it done and just what a great group to work with,” said Musk.

“Like I said, it’s just an honor to work with such a great team. And as a result, we were able to achieve our fourth consecutive profitable quarter. And although the automotive industry was down about 30% year over year in the first half of the year, we managed to grow deliveries in the first half of the year. So despite that massive industry decline, we actually went up, ” added Musk.

Musk also touted Tesla’s positive cash flow.

“On cash flows, our cash balance increased to our highest level yet of $8.6 billion, which included free cash flows of over $400 million. This is a strong result on its own despite an increase in capital expenses associated with Shanghai and Berlin, as well as movements in working capital,” said Musk.

Tesla stock split boosts shares

Similar to Apple, Tesla is also enacting a five-for-one stock split to make shares easier for investors to buy. Since the stock announcement, Tesla stock skyrocketed 76%.

Some analysts say stock splits help QQQ stock

Wedbush’s Dan Ives believes the split will help Tesla as a QQQ holding.

“We believe the stock split decision was a smart move by Tesla and its board, given the parabolic move in shares over the past six months, with another stock split by Apple and likely other larger tech stalwarts will follow this same path over the coming months, in our opinion,” Ives wrote in a note to clients.

He added that Tesla and Apple shares should continue to rise after the stock splits.

“I think this was a smart move by the companies and the board[s] and ultimately I think there’s going to be more stalwarts that follow. And I think right now, they’re just in a position of strength if you see what’s happening in terms of the market, of course on the EV[electric vehicle] side with Tesla and then Apple going into a supercycle. And this was the smart move at the right time in terms of the stock split and I view it as putting more sort of gasoline in the tank in terms of these stocks moving higher.”

JJ Kinahan is the chief market strategist at TD Ameritrade. He believes that the stock splits will lead to more demand for Tesla and Apple stock.

“I do think it will add to some increased demand. It’s become a lot more affordable for people overall,” said Kinahan.

Some experts think stock split will hurt QQQ stock

While some analysts are bullish on the stock splits, some are wary of the stock splits. Sarat Sethi, the managing partner at Douglas C. Lane, thinks that the stock split will hurt the long-term investors in QQQ stock.

“I think the idea that you can have more pieces of a pie for the same pie is concerning, especially for long-term investors and I think the ability for some of the retail investors to get in there and trade. So, that’s kind of making me a little wary when you look at how fast some of these stocks are moving when they’re announcing splits and some of the stocks that are just moving in these huge ranges even though the broader market’s not moving”, said Sethi.

Leon Cooperman is the Omega Family Office chairman and CEO. He doesn’t think that the stock split will help QQQ stock.

“Everybody understands that splits don’t create value. My dad once told me if he gave me five singles for a $5 bill, I’m no better off. … Apple’s up 30% with the S&P up 6% and everybody’s talking about the split. The splits don’t create any value,” said Cooperman.

Roger McNamee, co-founder of Elevation Partners, is also bearish on tech stocks in the QQQ ETF.

“I look at the market. I look at the stock split. And you never know when the momentum’s going to end, and I’m not trying to make a call on that issue. I’m just saying that, for me, this is enough. It’s been a great ride. And it’s not just Apple that I’ve been selling. I’m looking broadly through my tech portfolio — and I own a bunch of names — and I have been reducing positions across the board simply because I want to reduce the level of risk I’m taking in the market,” said McNamee.

5. Facebook

Facebook a profitable holding in QQQ stock

QQQ holdingFacebook (NASDAQ:FB) is a profitable QQQ holding. The social media giant had a healthy Q2 2020 earnings report. Chief financial officer Dave Wehner spoke about the company’s results.

“Q2 total revenue was $18.7 billion, up 11% or 12% on a constant-currency basis,” said Wehner.

Wehner noted that Facebook’s ad revenue increased as well.

Facebook stock a profitable QQQ stock holding

“Had foreign exchange rates remained constant with Q2 of last year, total revenue would have been $297 million higher. Q2 ad revenue was $18.3 billion, up 10% or 12% on a constant-currency basis,” said Wehner.

Maria Ripps said Facebook could benefit from people meeting more online and from “virtually all social interactions have been moved online during the pandemic.”

6. Netflix

Netflix (NASDAQ:NFLX) is a top holding in QQQ. The streaming company had an impressive Q2 2020, with $6.15 billion in revenue. During the quarantine, many people stayed home and watched the thousands of shows available on the streaming service, like Tiger King, Self-Made, and Love is Blind. After the last earnings report, chief financial officer Spence Neumann spoke about the positive results.

“We just added 10 million members, which is the largest growth we’ve ever had in a second quarter. And if you look at the — so we kind of look at the totality across the Q2 and Q3 period”, said Neumann.

Financial experts bullish on Netflix stock

Because of Netflix’s strong subscriber growth, Jefferies analyst Alex Giaimo said Netflix is a key QQQ holding.

In addition to Jefferies, Jeff Sica is a financial advisor that is bullish on Netflix stock. He thanks Netflix has an advantage because of its dominance in online content. The streaming service is often the first choice for producers of programming that reaches a wide audience.

“The real story with Netflix is that many producers always want Netflix to be their first choice of distribution. This is why they will continue to have the advantage in content,” said Sica.

Netflix is a tech stock that helps make QQQ stock a top pick for investors.

7. Zoom

Videoconferencing website Zoom (NASDAQ:ZM) had a spectacular Q2 with revenue of $663 million. That number surpassed the expected $500 million Wall Street expected. During the worldwide quarantine, millions of people used Zoom to work and communicate with each other. Zoom’s chief financial officer Kelly Steckleberg spoke about the results.

“Q2 was a remarkable quarter for Zoom as we continued to rapidly grow and invest in our business to meet the demands of our customers and communities. Let me start by reviewing our financial results for Q2, then discuss our outlook for Q3 and the increased view of our full-year FY ’21. Total revenue grew 355% year over year to $664 million in Q2,” said Steckleberg.

Analysts rate Zoom a buy for investors

Zoom’s stock is part of a reason that QQQ stock is a top pick for investors. Walravens is bullish on the QQQ stock holding.

“I have been doing this for 20 years, and I have never seen a story like this one. And it shows you the power of a really well-run company with a good mission that has exactly the service everyone needs in a crisis,” said Walravens.

Morgan Stanley also rates Zoom a buy. Before the company’s earnings report, the firm expected Zoom to surpass Wall Street expectations.

“Morgan Stanley analysts said ahead of the report that buy-side analysts expected Zoom to beat its own forecast by about 30%”, said the firm.

8. Nvidia

As a tech holding in QQQ stock, Nvidia (NASDAQ:NVDA) is a stock that is performing well in the ETF. The chipmaker had an impressive Q2 2020 earnings report. Founder Jensen Huang spoke about the company’s record $3.8 million revenue.

“Adoption of NVIDIA computing is accelerating, driving record revenue and exceptional growth. Growth in GeForce gaming accelerated as gamers increasingly immerse themselves in realistic virtual worlds created by NVIDIA RTX ray tracing and AI,” said Huang.

The company noted that despite COVID-19, its next-generation gaming cards will help Nvidia’s profits. During the pandemic, the gaming industry has soared as many people stay home. Nvidia provides many of the gaming cards for popular games like Fortnite.

“Despite the pandemic’s impact on our professional visualization and automotive platforms, we are well-positioned to grow, as gaming, AI, cloud computing and autonomous machines drive the next industrial revolution around the world,” said Huang.

Analysts bullish on Nvidia stock

Wells Fargo analyst Aaron Rakers noted that the Ampere graphics processing units will have a price increase. That upgrade can lead to Nvidia stock growth.

“The new Ampere lineup carries the same price points as the prior Turing GeForce line-up w/ GeForce RTX 3080 priced at $699. This compares to some reports pointing to a potential like-to-like increase; note that prior gen Turing (2018) and Pascal (2016) had $100 and $50 price increases, respectively,” said Rakers.

Mizuho analyst Vijay Rakesh also thinks the graphics processing units will help boost Nvidia stock.

“We believe the combination of a strong 3D rendering GPU platform boosted by RTX and AI drive a step up in its value proposition for developers and gamers and create a deeper moat versus the competition for NVDA,” said Rakesh.

Cowen also says Nvidia key part of QQQ stock

Cowen analyst Matthew Ramsay also thinks Nvidia’s chips for gaming devices make the stock a buy.

“We believe Nvidia is pricing the cards aggressively to ensure it maintains its dominant gaming ecosystem leadership and wallet-share given upcoming new GPU launches from Advanced Micro Devices Inc.’s Big Navi line, and new Sony/Xbox game consoles,” said Ramsey.

“Coupled with strong underlying gaming demand driven by COVID-19, we do expect the 3080 to represent a compelling upgrade for consumers, and expect that product cycle to drive gaming growth for the next several quarters,” added Ramsey.

9. Microsoft

Microsoft (NASDAQ:MSFT) is a top tech holding that is in QQQ stock. The tech giant had a profitable Q2 2020. With many people home quarantined, many people used Microsoft’s cloud technology. Chief financial officer Amy Hood touted the results.

“This quarter, revenue was $36.9 billion, up 14% and 15% in constant currency. Gross margin dollars increased 22% and 25% in constant currency. Operating income increased 35% and 39% in constant currency, and earnings per share was $1.51, increasing 37% and 41% in constant currency”, said Hood.

“Revenue was $11.9 billion, increasing 27% and 28% in constant currency, ahead of expectations, driven by continued customer demand for our hybrid offerings,” said Hood.

Microsoft also spoke about the company’s cloud growth with its Azure division.

“On a significant base, server products and cloud services revenue increased 30% and 32% in constant currency. Azure revenue grew 62% and 64% in constant currency, driven by another quarter of strong growth in our consumption-based business across all customer segments,” said Hood.

Experts bullish on Microsoft stock

Because of Microsoft’s Q2 2020 impressive earnings report, Amana Mutual Funds says the stock will continue to grow.

Microsoft’s Azure cloud technology has also made the company’s stock a buy to other financial analysts.

Wedbush’s Dan Ives said that Microsoft “has seen robust cloud deal activity around Azure in the field during the June quarter with modest cloud upside expected, as this current work from home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board.”

As more customers use Microsoft Teams and other products to work from home and communicate, Microsoft is a solid part of QQQ stock.

10. Adobe

In addition to Microsoft, Adobe (NASDAQ:ADBE) is a tech holding that’s boosting QQQ stock. Adobe had a strong Q2 2020, with more customers using the company’s Photoshop and Document Cloud e-signing technology. The software company’s CEO Shantanu Narayen touted the company’s robust results.

“Adobe drove strong Q2 performance across Adobe Creative Cloud, Adobe Document Cloud, and Adobe Experience Cloud. We delivered $3.13 billion in revenue in Q2, representing 14% year-over-year growth. GAAP earnings per share for the quarter was $2.27, and non-GAAP earnings per share was $2.45,” said Narayen.

“We continued to drive strong adoption for Adobe Sign, our cloud-based electronic signature solution, with usage increasing 175% since the start of our fiscal year. Mobile usage exploded with Acrobat Reader installations increasing 43% year-over-year and Adobe Scan installations, up 66% year-over-year,” added Narayen.

Experts say Adobe is vital part of QQQ stock

With Adobe’s strong last earnings report, Amana Mutual Funds say investors should add QQQ stock to their portfolio.

“Digital media leader Adobe has also appeared as a top contributor over multiple years. Its appreciation wasn’t as great but it’s a large position, leading to the strong contribution,” said Amana Mutual Funds.

Qualivian Investment Partners is also bullish on Adobe as part of QQQ stock. Despite Adobe’s diminished sales in its Digital Experience division, but still is a top holding in the QQQ ETF.

“ADBE Reported strong Q2 results in the Digital Media and Document Cloud segments. The third segment, Digital Experience, was negatively impacted by COVID which led to a decline in advertising and delays in booking and consulting services for enterprises. COVID also negatively impacted the small and medium-size business segment. The business model and market position of Adobe remains strong and we have confidence in it as a long-term holding,” said Qualivian Investment Partners.

Adobe’s 14% growth from a year ago shows that many people are dependent on tech to navigate working from home during the COVID-19 pandemic.

QQQ stock a good addition to investors’ portfolios

With the most profitable tech holdings in the world, QQQ stock would be a strong choice for any trader or investor. QQQ is an ETF that is a one-stop shop for the best tech stocks on the NASDAQ. With TradingSim’s charts and blogs, traders can monitor QQQ and practice trading before diving into one of the most prominent ETFs in the stock market.

There is an old saying about the stock market: ” A bull market will climb a wall of worry, while a bear market will slide a slippery slope of hope.” Loosely translated, that means that a bull market may have periods of decline, while a bear market may have short-term rallies. With the current upswing in stocks during the end of the bear market, is it safe to say Wall Street has recovered from COVID-19?

In this TradingSim article, I’ll explore whether the latest rallies mean that the stock market is in a sustained recovery for new investors. I’ll also write about 10 stocks that are performing well and driving the recent Wall Street rebound.

What is a slope of hope?

A slope of hope is a glimmer of hope in a bearish market. The phrase comes from financial expert Robert Prechter. He noted that even if stock prices are falling, there’s still hope for a rally. He explained the meaning of the phrase in 2010.

“Even though the market is about to begin its greatest decline ever, the era of hope is not quite finished. For as long as another year and a half, there will be rallies, fixes, hopes and reasons to believe in recovery. Our name for this phase of the bear market is the ‘Slope of Hope’,” said Prechter.

Is the U.S. still in a recession?

Even though the stock market is recovering, the U.S. economy at large is still struggling. The country’s gross domestic product (GDP) contracted at 32.9%, the largest drop since the Great Recession in 2009.

Nariman Behravesh, chief economist at IHS Markit, noted that while some industries like construction and dentistry are doing well, others like airlines are still struggling. The oil industry and natural gas ETFs are especially hit hard by decreased oil prices.

“It’s very much a sort of two-tiered economy right now,” said Behravesh.

Van Eck natural gas dropped during bear market

When the GDP plummets for two quarters in a row, that means the U.S. is in a recession. While the economy is cratering, this recession is different from the previous one ten years ago. Liz Ann Sonders, Schwab’s chief investment strategist, notes that the nationwide shutdown caused the current recession.

“We’ve never had a full-stop economic shutdown by government mandate ever in history,” said Sonders.

This recession is in contrast to the one caused by the collapse of big banks in 2008.

Why are stocks sliding down the slope of hope?

While the economy is still sluggish, stocks have been on a volatile ride. As Sonders noted, the rollercoaster ride of the stock market over the last few months has been unprecedented.

‘We went from an all time high on February 19 to down 35% on March 23 at a record clip, the fastest move from an all-time high to bear market territory in history. But the speed with which the rebound happened is unlike anything we’ve seen before,” said Sonders.

Senior economists like Bob Schwartz is optimistic that low mortgage rates and an increase in housing activity will help spur the stock market.

“Record-low mortgage rates, the onset of spring and improving sentiment are spurring a burst of activity in the housing market. For the most part, economic indicators are showing more strength than expected, confirming that the worst of the COVID-19 recession is behind us,” said Schwartz.

Ironically, the economic hardships that many Americans are experiencing are helping drive optimism in the stock market. When the COVID-19 crisis started, many people had to quarantine and miss work. The government paid out $1,200 economic stimulus checks to Americans to supplement missed income. As a result, many Americans finally had money to spend on household goods and food, which spurred Wall Street optimism.

Economic analysis firm IHS Markit noted that increased spending helped the economy.

“Household spending has benefited from federal stimulus payments (“economic impact payments”) and been reinforced by the return to work for some employees,” noted IHS Markit.

Jurrian Timmer is the director of global macro at Fidelity Investments. He’s another financial expert who believes that the stock market is a leading indicator about the economy’s eventual road to recovery.

“Typically the market will start declining before a recession is visible and it will start recovering about four months before the end of a recession”, said Timmer.

When did the slope of hope start?

While the economy is in a recession, ironically, the stock market has been climbing. Quincy Krosby is a chief media strategist at Prudential Financial. He commented that the stock market tends to rise and fall based on future hopes, not current reality. For example, in May, despite high unemployment and civil unrest, the stock market climbed. That was because of news about possible coronavirus vaccines.

“Every time there has been a positive announcement regarding a vaccine, it’s had a halo effect on the market. This is a market that has been desperate to see the other side of this, and the only way it can do that, is watching those announcement from the companies moving towards a vaccine,” said Krosby.

Why is the stock market rising despite negative economic news?

Despite the negative news about the overall economy, Krosby commented that the stock market is often independent of the economy.

“The market always seems heartless, without any emotion, without caring, without empathy. But that’s the nature of the market. The algorithms almost certainly have no shred of empathy. They’re not supposed to,” said Krosby.

Nicholas Colas is co-founder of DataTrek Research. He notes that the stock market has a history of rising despite volatility outside Wall Street.

“There are many valid reasons to be bearish on risk assets like stocks or corporate debt just now, but history shows markets look through many sorts of tumultuous events and have done so for decades. That may seem counterintuitive, and perhaps not even ‘fair,’ but it’s absolutely true,” said Colas.

Sam Stovall is the chief investment strategist at investment research firm CFRA. He’s bullish on the stock market and believes that the recent rally is a sign of long-term recovery.

“I think the March 23 low will eventually be regarded as the start of the new bull market,” said Stovall.

“The reason for my optimism is the massive amount of stimulus,” added Stovall.

Some economists are pessimistic about stock market recovery

While many economists are bullish on the stock market, some are bearish. James Montier is a behavioral economist who writes that the stock market may not recover so quickly. He writes that the economy may not recover as fast if struggling small businesses don’t rebound as well.

“The impact on business in terms of bankruptcies and lower investment will also be key. It is easy to imagine that in the wake of the virus, entrepreneurs may be hesitant to try and start new businesses, which are often said to be the lifeblood of the U.S. economy. Sadly, many businesses will have failed due to the effects of the pandemic, and even those that do survive may likely find their animal spirits dampened significantly,” wrote Montier.

Montier added that while he isn’t trying to predict the future of the stock market, Wall Street is still trying to predict the future with certainty.

“I don’t know the answers to these questions, and I am going to refrain from participating in the very popular trend of becoming an armchair epidemiologist or virologist, but I do know that these questions and many others exist,” said Montier.

“I am also certainly not in the business of trying to second-guess how the future will unfold, but I do know that anyone claiming certainty of foresight is likely to be sorely disappointed. And yet, Mr. Market appears to be doing exactly that,” added Montier.

Some analysts say stock market is still on wall of worry instead of slope of hope

In addition to Montier, Doug Ramsey is chief investment officer and portfolio manager at the Leuthold Group. He’s skeptical that the latest rally will match the last bull market rally in 2009.

“The current rally is either the first up-leg of a new bull market or the second-largest bear-market rally in the past 125 years,” said Ramsey.

“I’m trying to look at the glass as half-full, but how can we embark on a multiyear bull market when we’re at valuations that are so much higher than what they were at the same stage of the last bull market?” added Ramsey.

Ryan Detrick is a senior investment strategist at LPL Financial. He notes that there is no way to predict what will happen in the stock market during this volatile year.

“There are no roller coasters that can replicate what stocks have done so far in 2020,” said Detrick.

Despite the volatility of the stock market, there are some stocks that are performing well. Here are ten stocks that are doing well despite the pandemic.

1. Clorox

Clorox stock (NYSE:CLX) has been a top performer since the quarantine. With a demand for cleaning products, the company’s antiseptic wipes have been in high demand. Clorox stock roared up 54% this year. The stock has jumped 16.6% just over the past three months.

Clorox had excellent Q3 2020 earnings

In its Q3 2020 earnings, Lisah Burhan, Clorox’s vice-president of investor relations, spoke about Clorox’s positive earnings report. Clorox’s Q3 revenue surged 15% to $1.78 billion.

Clorox stock is climbing, leading to a slope of hope

“The business had another quarter of double-digit sales growth behind continued elevated demand across the portfolio,” said Burhan.

“While we’ve been able to add significant capacity, demand still far exceeds supply, leading to continued out-of-stocks for many products,” added Burhan.

Clorox’s CEO, Benno Dorer, noted that in Q3 2020, Clorox is still trying to meet demand for its cleaning wipes that were flying off shelves during the quarantine.

“Since Q3, we were able to bring on more than 10 new suppliers to help us maximize our output, not just for disinfecting products, but for other parts of our portfolio too,” said Dorer.

“For disinfecting products, we’re continuing to run our plants 24/7, and we’ll be bringing more disinfecting capacity online in the midterm. With all the levers we’re pulling to expand output, I am confident in our ability to do better for our customers and consumers,” added Dorer.

Analysts rate Clorox stock as a buy

Because of Clorox’s strong sales, many analysts rate Clorox stock as a buy. Linda Bolton Weiser is D.A. Davidson’s senior research analyst. She wrote in a note to clients that the strong demand for Clorox products makes Wall Street go down a slope of hope.

“Clorox continues to chase demand for disinfecting products and is still prioritizing shipments to healthcare facilities, which has caused some stock-outs on retail shelves and therefore share losses,” wrote Bolton Weiser.

2. Proctor & Gamble a stock that takes Wall Street on slope of hope

In addition to Clorox, Proctor & Gamble(NYSE:PG) is another stock that is performing well during the COVID-19 pandemic. The cleaning product company had a profitable Q4 2020 as well. Sales rose 4% to $17.7 billion in Q4 2020. Jon Moeller spoke about the corporation’s positive earnings report.

“Capping a strong year, a very strong April-June quarter. Organic sales up more than 6% on top of the base period, that was up 7%. Volume, pricing and mix each contributed to top line growth. Strong organic sales growth in our two largest markets up 19% in the U.S. and 14% in Greater China,” said Moeller.

Analysts rate P&G stock as a buy

Because of its robust earnings report, analysts rate P& G stock as a buy.

“With momentum behind both pricing and volumes, we believe P&G can still generate mid-single-digit-plus organic sales growth in 2020 despite the challenges presented by COVID-19,” analysts wrote.

“We expect P&G to leverage its improving top-line throughout its P&L, as we believe P&G will be able to drive operating leverage throughout the business (as it has done in the past) and unlock additional cost savings from its productivity programs.”

3. Zoom

Zoom growth drives Wall Street down a slope of hope

It’s hard to imagine a stock that grew more in the last few months than Zoom (NASDAQ: ZM). The videoconferencing company had a whopping 169% growth from last year. In its Q1 2021 earnings report, CEO Eric Yuan spoke about the ubiquity of Zoom as more people worked from home.

“We were humbled by the accelerated adoption of the Zoom platform around the globe in Q1. The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives,” said Yuan.

“I am proud of our Zoom employees who dedicated themselves to support customers and the global community during this crisis. With their tremendous efforts, we were able to provide high-quality video services to new and existing customers,” added Yuan.

Analysts rate Zoom stock a buy

Because of Zoom’s strong earnings and its success as a growth stock, Needham analyst Richard Valera said that Zoom’s growth was impressive.

“Never have I seen something of that magnitude in my 20 years of covering technology,” said Valera.

Daniel Milan is managing partner of wealth manager Cornerstone Financial Services. He believes that Zoom’s success will continue after the pandemic is over.

“Companies want to get folks back into the office and schools long for the in-class experience, but there will now be a strong Zoom component to these businesses,” said Milan.

Zoom is a stock that is performing so well that Wall Street is going down a slope of hope despite bearish tendencies.

4. Amazon leading Wall Street down a slope of hope

One of the best-performing stocks this year is Amazon (NASDAQ:AMZN). With many people quarantined, Amazon became a lifeline for ordering household items. Amazon’s shares surged 70% over the past year. The e-commerce company’s Q2 2020 revenue was an impressive $89 million.

Amazon CEO Jeff Bezos spoke about the results.

“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” said Bezos said in a statement.

“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS,” added Bezos.

Is Amazon stock a buy?

With Amazon’s strong Q2 2020 earnings, many analysts rate Amazon stock as a buy. K.C. Ma is president of KCM Asset Management and is a finance professor at the University of West Florida. He rates the stock as a buy for investors.

“The strong gains in ad, cloud and international margins may help offset the free one-day shipping for Prime,” he says. Long-term trends of cloud consumption should “propel (Amazon Web Services’) revenue even higher,” said Ma.

“With further economies of scale at AWS, likely continued strong growth in digital advertising and an increasingly predominant growing e-commerce base of third-party sellers, Amazon seems to us well-positioned to further prosecute its strategic mix shifts toward higher-margin businesses in 2020,” added Ma.

Mike Bailey is director of research with FBB Capital Partners. He notes that Amazon stock has the potential to grow with more advertising.

“Despite the run in Amazon shares, our sense is investors have yet to fully price in the potential upside from Amazon’s entry into the advertising business, which is growing quickly but currently is only a fraction of the size of Facebook and Google,” said Bailey.

Amazon’s stellar performance this year has led Wall Street down a slope of hope that the bear market is officially over.

5. Tesla

In addition to tech stocks, Tesla (NASDAQ:TSLA) is a stock that is rocketing up during the COVID-19 pandemic. The electric car company is now the most valuable car company in the world. Tesla had an impressive Q2 2020. The corporation reported $ 6 billion in revenue and turned a profit. The automaker spoke in a statement about the results.

“Our operating profit improved in Q2 despite challenging circumstances. Positive impacts included lower operating costs due to a temporary reduction in employee compensation expense, a sequential increase in regulatory credit revenue and deferred revenue recognition of $48M related to a Full Self Driving (FSD) feature release,” said Tesla.

“These positive contributions were offset by significant costs related to factory shutdowns, as well as a sequential increase in non-cash SBC expense primarily attributable to $101M related to 2018 CEO award milestones,” added Tesla.

Tesla stock soars after stock split

The company’s stock continued to soar after a recent five-for-one stock split.

“Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors,” said Tesla.

Since making the decision, Tesla stock jumped 30%. The electric car company continues to be one of the best-performing stocks of the year.

Analysts bullish on Tesla stock as Wall Street goes down slope of hope

Cowen analyst Jeffrey Osborne is bullish on Tesla stock despite the controversies with founder Elon Musk. Osborne spoke about how Tesla is a buy because electric cars are becoming more popular.

“We[Cowen] continue to be cautious on Tesla, but anything EV related is red-hot for investors now and there is a scarcity of ways to invest in the theme, thus we see the stock continuing to ‘work’ near-term despite our caution on competitive positioning over time and valuation,” wrote Osborne in a note to clients.

Wedbush’s Dan Ives also rates Tesla stock as a buy. He thinks that Tesla’s widely available electric car battery will raise Tesla’s stock even more.

“We[Wedbush] continue to believe [electric vehicle] demand in China is starting to accelerate in July/August with Tesla competing with a number of domestic and international competitors for market share with Giga 3 remaining the linchpin of success which remains the prize that [Chief Executive Elon] Musk and Tesla are laser-focused on capturing,” wrote Ives in a research note.

Tesla is a stock that has shown enormous growth and is leading Wall Street down a slope of hope.

6. Moderna

In addition to tech stocks, pharmaceutical stocks are performing well during the new bull market, like Moderna (NYSE: MDMA). The stock appreciated over 200% this year. Moderna received $1.525 billion from the government to develop a COVID-19 vaccine. CEO Stephane Bancel spoke about the deal.

“We appreciate the confidence of the U.S. government in our mRNA vaccine platform and the continued support,” said Bancel.

Moderna leads investors on slope of hope with robust Q2 2020 earnings

Along with the coronavirus vaccine, Moderna’s Q2 2020 earnings were impressive. Moderna’s chief financial officer, David Meline spoke about the company’s $66.35 million revenue.

“We ended Q2 2020 with cash and investments of $3.1 billion, compared to $1.7 billion at the end of Q1. The increase is driven by the capital raise in May of this year. Net cash used in operating activities was $130 million for the first half of 2020, compared to $253 million in 2019,” said Meline.

Moderna a buy to many financial experts

Because of Moderna’s strong earnings and potential COVID-19 vaccine, analysts led by Geulah Livshits see Moderna as a buy for investors.

“We now await visibility on what agreements with other countries might look like but see the news as a positive signal re: Moderna’s potential entry into a commercial space often dominated by big-cap,” wrote Geulah Livshits in a note.

Danielle Shay is director of options at Simpler Trading. She advises traders to invest in Moderna stock.

“If you’re a little bit more of an aggressive trader and like to trade on more of an intraday basis, [stocks] like Moderna look absolutely amazing,” said Shay.

Moderna is a strong pharmaceutical stock that leads Wall Street down a slope of hope.

7. Gilead

Another pharmaceutical stock that’s soaring is Gilead (NYSE: GILD). In addition to Moderna, Gilead’s COVID-19 treatment, remdesivir, is in the trial stages. Gilead recently partnered with another pharmaceutical giant, Pfizer, to manufacture the drug. Gilead’s CEO Albert Bourla spoke about the deal in a statement.

“From the beginning it was clear that no one company or innovation would be able to bring an end to the COVID-19 crisis. Pfizer’s agreement with Gilead is an excellent example of members of the innovation ecosystem working together to deliver medical solutions,” said Bourla.

“Together, we are more powerful than alone. As one of the largest manufacturers of vaccines, biologics and sterile injectables, it is a privilege to offer our expertise and infrastructure to help fight this pandemic. In that spirit, we are pleased that Gilead is using our manufacturing capacity to help facilitate supply of this medicine to patients as quickly as possible,” added Bourla.

Gilead’s Q2 2020 has strong earnings report

With the potential for remdesivir to be a COVID-19 vaccine, Gilead had a mostly positive Q2 2020. Total revenue for the second quarter was $5.1 billion with earnings per share of $1.11. CEO Daniel O’Day spoke about how remdesivir will be priced.

“We price remdesivir well below the value it provides to enable access at this critical time and ensure that we continue to meet our responsibilities in the future with further investment in remdesivir and in research that will help us to prepare for any future pandemics. The extensive clinical development work continues on remdesivir, so that we can potentially extend the treatment to many more patient groups,” said O’Day.

Because of its promising COVID-19 vaccine, Gilead is a strong stock that will lead investors on a slope of hope.

8. Target rise sends Wall Street on a slope of hope

During the pandemic, online shopping has boomed and Target(NYSE:TGT) benefited from that growth. The store chain’s stock climbed 37% in the last few months. In addition to online shopping, in-store sales and curbside pick-up also jumped in the last few months.

Target has record Q2 2020 growth

Target’s Q2 2020 revenue topped $23 billion, a 24% surge. CEO Brian Cornell spoke about the phenomenal results.

Target stock leads investors down a slope of hope

“The results we reported this morning are truly unprecedented. On the top line, we delivered second-quarter comparable sales growth of 24.3%, the strongest we’ve ever reported. Equally remarkable on the bottom line, we generated adjusted EPS of $3.38, a new record high,” said Cornell.

Target a buy to top financial experts

Because of Target’s excellent Q2 2020 report, retail experts like Neil Saunders rate Target stock a buy in a note to clients. As managing director of GlobalData Retail, he’s impressed by the company’s record-breaking quarter.

“The basic point is that Target has developed a proposition that is cohesive which means its guests will happily shop multiple categories allowing Target to maximize its share of wallet,” wrote Saunders.

“This has always been beneficial, but it came into its own at a time when consumers have been reducing the number of shopping excursions that they make. Target’s position also stands in contrast to some of its competitors, such as Walmart, which is far less able to get people to shop across multiple departments,” added Saunders.

Raymond James is also bullish on Target stock. The financial analysis firm believes Target’s robust sales make the stock a buy for investors.

“We believe the company was able to take a significant amount of share during the quarter, which bolsters our long-term view for a large share opportunity,” wrote Raymond James in a note to clients.

Evercore analyst Greg Melich also said Target stock is a buy because of its blockbuster sales online and in stores.

“Target’s digital offer is working in tandem with their fleet of 1,900 stores and shows that the multichannel mojo is a strategic positive in the battle vs. Amazon and Walmart,” said Melich.

With Target’s strong brick-and-mortar and online sales rising, the chain’s stock is leading investors down a slope of hope.

9. PayPal

In the middle of COVID-19, digital payments have become pivotal. PayPal (NYSE:PYPL) stock skyrocketed 78% over the past year. CEO Dan Schulman spoke to CNBC about the digital payment company’s growth.

“Across every industry, we’re seeing this surge towards a digital-first strategy, and all of the tools and products and services that we offer are probably more relevant and important across multiple industries than they’ve ever been before,” said Schulman.

PayPal growth drives Wall Street down a slope of hope

Because of the recent surge in digital payments, PayPal’s Q2 2020 earnings were better-than-expected. Schulman spoke about the results.

“In the midst of the COVID pandemic, we have seen substantial macro changes that we believe will have a lasting and profoundly positive impact on our business. The world has accelerated from physical to digital across multiple industries including retail. Merchants are embracing a digital-first strategy, and these trends have fueled the rapid rise of digital payments,” said Schulman.

“Revenues grew by 25% on an FX-neutral basis to $5.26 billion, accelerating after our strong 20% revenue growth in April. This is the first time our quarterly revenues have exceeded $5 billion,” added Schulman.

PayPal a buy to financial experts

As a result of PayPal’s successful Q2 2020 results, Goldman Sachs is bullish on the company’s stock.

“Given increased digital adoption over the last couple of months, convenience offered by these platforms amid the pandemic, and a large number of retailer store closures & bankruptcies, the shift to online could remain elevated over the coming quarters,” said Goldman Sachs.

PayPal’s growth during the pandemic is leading the stock market down a slope of hope to end the bear market.

10. UPS

As a result of COVID-19’s quarantine, UPS (NYSE:UPS) stock has soared with an increase in home deliveries. The package delivery company had revenue increase to $20.5 billion, a 13% jump from Q2 2019. CEO Carol Tomé spoke about the results.

“Our results were better than we expected, driven in part by the changes in demand that emerged from the pandemic, including a surge in residential volume, COVID-19 related healthcare shipments and strong outbound demand from Asia,” said Tomé.

“UPSers are keeping the world moving during this time of need and I want to thank our team for their hard work and outstanding efforts to serve our customers, our communities and each other,” added the CEO.

UPS a buy because of more deliveries in quarantine

Because of UPS’ increase in deliveries and profits, Bernstein analyst David Vernon rates the stock as a buy.

“E-commerce parcel pricing is expected to remain strong as the pull forward of e-commerce penetration has strained delivery capacity,” wrote Vernon in a research note. “With UPS looking to get ‘better, not bigger,’ FDX [FedEx]emphasizing returns and the [U.S. Postal Service] curtailing capacity, the rate environment at present is outstanding.”

BofA Securities analyst Ken Hoexter also is bullish on UPS stock.

“Given that UPS provides both a critical and difficult-to-replace service for many of its customers, we believe this strategy shift could drive a multi-year tailwind for financial results,” wrote Hoexter in a note to clients.

Slope of hope leads investors into new bull market

With the success of the previously mentioned stocks, Wall Street is going down a slope of hope. After the end of the shortest bear market, investors can feel confident that they’re trading stocks in a new bull market. With TradingSim blogs and charts, traders can determine when the stock market will slide down a slope of hope into a long-term rally.

Restricted stock units (RSUs) are a top perk for employees. Many tech companies that are growth stocks offer this stock-based compensation once an employee joins a company. In many cases, they are an alternative to stock options similar to ETFs.

In this TradingSim article, I will explain what a restricted stock unit is. Throughout this article, I will also explain which stocks can be added to rebalance portfolios and help their trading strategies because they are profitable enough to offer employees the best RSUs.

What are restricted stock units?

When a company hires an employee, at first they may receive the units as part of their compensation. RSUs are grants that are part of stock-based compensation that are equal to the value of a corporation’s common stock. When companies issue the grants, they are based on the value of the company’s stock.

How do RSUs work?

Employers distribute restricted stock units to employees after a vesting period. A vested definition means that an employee will own shares. During a vesting period, a certain amount of time an employee has to work at a company before they receive the shares.

For example, a company can give an employee 2,000 RSUs. If 25% of the RSUs vest each year, after one year, 500 shares will vest. In addition, employees can also receive the shares as cash. Once they vest, an employee can receive sell the shares.

If employees want to donate their RSUs to charity, they can help a good cause– and themselves at tax time. One benefit is that employees can get an itemized deduction that’s equal to the stock’s market value. The second benefit is that employees can avoid capital gains taxes by giving RSU shares to charities.

What are double trigger RSUs?

Double trigger RSUs are another kind of restricted stock unit that employers offer. They are offered by new companies before their IPOs(initial public offerings. Double trigger RSUs are not taxed until they are vested and the companies go public with their IPOs.

Garrett Perez, a CPA, notes that many companies have double trigger restrictive RSUs to protect their workers.

“Most companies who do in fact issue RSUs have this requirement [of double-trigger vesting] as it would be extremely punitive on their employees to have them recognize it as income with essentially no market to sell it in. I’ve never seen a pre-IPO company that does not have the double vesting requirement,” said Perez.

What is a restricted stock unit vested schedule?

Some employers offer RSUs on a graduated vesting schedule. In that case, the units may vest 10% after one year, 20% after two years, and so on.

Vested schedules for restricted stock units vary in three ways. For example, say an employee receives 120 RSU’s in January 2020. In cliff vesting, workers receive 100% of their benefits after a certain amount of time. In a three-year vesting schedule, an employee receives all their shares in January 2023.

With a graded vesting schedule, a company gives fewer shares of its stock at an annual rate. If there’s a three-year graded vesting schedule, an employee may receive 30 shares of a stock every January until 2023.

In a cliff/graded vesting hybrid, there is a mixture of the two vesting schedules. A company can issue 40 shares of its stock in January 2020. Then, they may issue 3-4 shares a month until the vesting period is over.

How do RSUs differ from stock options?

Similar to stocks vs. ETFs, RSUs are similar to stock options, but have key differences. In most instances, restricted stock units

don’t expire. They convert into shares after a vesting period. Because of the conversion, they don’t ever have an expiration date.
have the same fair market value during the vesting period.
complete a vesting schedule usually after five years.
are taxed as regular income when they’re vested.

In contrast, stock options

expire 10 years after employees receive them.
tie into the stock price. If a stock price drops below the grant price, the option’s value plummets. When a stock price rises, the stock option’s value jumps as well.
aren’t vested.
are taxed at the time the options are exercised.

What are the advantages of restricted stock units?

In a bear market, restricted stock units can be a safer option for employees. Because stock options are tied to a stock price, a diminished stock price can hurt an employee’s stock options. However, employees take RSUs at a stock’s current market value when they’re vested. At the time the units are vested, they could have a higher value to employees.

What are the disadvantages of RSUs?

Because restricted stock units are different from stock options, they may not reap all the benefits. Since most RSUs vest after five years, many employees may leave their jobs before they enjoy the stock perks. If an employee quits, their former employer forfeits the RSU that remain.

Even if employees stay with a corporation for five years, the value of their RSUs may not be the same after the vesting period. If the stock loses value during an economic downturn, the RSUs may lose value when the employee receives the shares.

How are restricted stock units taxed?

In the year they’re vested, RSUs are taxed as income if an employee keeps the units. If an employee sells the units, capital gains taxes will due at the time of the sale. Restricted stock units aren’t tax-free investment expenses. For example, if an employee vested 20,000 shares of a company’s stock at $20, the value of the RSUs will be $200,000. That amount is treated as taxable income by the IRS.

It’s important to have the RSU vested income set aside to pay taxes because tech companies usually may not pay them themselves. The success of tech companies may ironically mean that they don’t make withdrawals for employees.

Corporations usually withhold state, federal, Social Security, and Medicare taxes on RSU’s. The taxes are usually at a flat rate of 22%.

However, because tech companies are often in high tax brackets, a tech company’s workers often have to pay higher taxes on their RSUs. They would often owe more than what employers would set aside to cover taxes.

Special tax election can collect RSU taxes sooner

If an employee wants to take their taxes out before the restricted stock units vest, they can make a special election. The special Section 83(b) election taxes employees before the RSUs vest. The RSUs are taxed as extra compensation.

If employees keep the restricted stock units for more than a year, the RSUs are taxed at a lower rate as capital gains. However, the units are taxed in the year that employees receive them, even if the stock unit declines in value.

What are the RSU tax withholding methods?

There are four main tax withholding methods for restricted stock units.

In a same-day sale, all of the shares sell on the day they’re vested. The money can be used to pay taxes.
With a cash transfer, money is deposited from an employee’s account to pay taxes.
In the sell-to-cover method, an employee receives shares at the end of the vesting period. An employee’s broker can sell the shares to cover tax expenses. Then, a worker can keep the remaining shares.
With a net share settlement, an employee’s company can retain some of the vested RSUs. The shares are equal to the withholding tax amount. After that, the units that are left can be deposited to a brokerage account.

What is the cost basis for restricted stock units?

The cost basis for RSUs is the fair market original value of an employee’s shares on the day that the units vest and they receive the shares. That value will likely never change throughout the vesting period of the restricted stock units. The cost basis usually stays the same. It isn’t adjusted to calculate an employee’s tax calculations unless the unit amount is $0.

All of the corporations below offer generous RSUs to employees. These companies are the top corporations that offer restricted stock units to employees.

1. Amazon

Amazon’s stock soars during COVID-19

During the coronavirus pandemic, Amazon’s (NASDAQ:AMZN) stock soared 68% a year after hitting its rock-bottom low. Financial experts like Wedbush analyst Michael Pachter said the e-commerce boom during quarantine will boost Amazon in the long term.

“E-commerce is likely one of the biggest beneficiaries. E-commerce is likely to see a permanent shift away from offline stores,” said Pachter.

FBN Securities analyst Shebly Seyrafi believes that Amazon stock will continue to rise even if another quarantine happens in the U.S.

“To us[FBN Securities], AMZN[Amazon] is the ultimate ‘stay-at-home stock,'” wrote Seyrafi in a note to clients.

Amazon raises wages, but cuts RSUs for hourly workers

Amazon’s RSUs usually vest after four years. They vest on a 5-15-40-40 schedule. That means that after year 1, the restricted stock units vest 5%. Then they vest 15% the second year. In the last two years, they vest at 40%.

During 2018, Amazon eliminated RSUs for its hourly workers. In exchange for raising the wage of hourly workers to $15, Amazon ended RSUs as part of employee benefits. As noted in a company blog post, Amazon restricted stock units will vest this year, and in 2021. The corporation replaced the RSUs with direct stock. An Amazon spokesperson explained the changes.

“The significant increase in hourly cash wages more than compensates for the phase-out of incentive pay and RSUs,” said the spokesperson.

“We can confirm that all hourly Operations and Customer Service employees will see an increase in their total compensation as a result of this announcement. In addition, because it’s no longer incentive-based, the compensation will be more immediate and predictable,” added the spokesperson.

Amazon RSUs help employees buy homes

For salaried employees that still receive RSUs, the units make it easier to buy pricey homes in the company’s home base of Seattle. Diana Bowar, a loan officer at 1st Security Bank, offers restricted unit stock loans to Amazon employees to buy million-dollar homes. Bowar noted that the employees receiving RSUs are more likely to stay in Seattle.

“There’s a need in our backyard. And we’ve seen that people who are getting RSU income and have contracts with Amazon, the likelihood that they’re going to stay in that job making that kind of income is good,” said Bowar.

In 2019, bank lenders usually need employees to show two years of RSU income before they consider restricted stock units as income. Don Zender is branch manager of Evergreen Home Loans and Veterans Lending. He noticed that Amazon employers couldn’t use their RSUs as a down payment on houses.

“But if you start at Amazon, you can’t do that. The biggest hurdle has always been the first couple years,” said Zender.

Many lenders like Evergreen are now open to providing loans to employees with Amazon RSUs.

“Some lenders are starting to say, well, RSUs are not really a one-time thing,” said Steve Geri, a financial adviser at Denny Park Investments in South Lake Union. “They’re a continuing form of compensation in many industries.”

Amazon is a top stock offering restricted stock unit

2. Uber

Uber stock strong as it moves beyond ridesharing

Uber(NASDAQ:UBER) stock recently rose 3% after recent reports it was purchasing food delivery service Postmates. The acquisition would be a welcome addition to Uber’s own food delivery division, Uber Eats. Canaccord Genuity Maria Ripps wrote a note to clients that suggested that Postmates would help Postmates raise Uber’s stock more.

“Postmates should continue to benefit from restaurant selection and strong positions in key markets. However, as the fourth-largest player in the US market, we also see it as a potential consolidation target,” wrote Ripps in the recent client note.

Uber benefits from being rideshare leader

The ridesharing giant has benefitted from being a rideshare leader. Uber CEO Dara Khosrowshahi noted that the company has an advantage over competitor Lyft because of its global reach and diversified businesses under the Uber umbrella.

“We[Uber] are structurally set up more efficiently and more optimally than anyone else to move to profitability. This environment is perfect for us,” said Khosrowshahi.

Uber established restricted stock units in beginning

When Uber first went public in 2019, it detailed in its IPO filing how it would distribute its RSUs.

Uber is a top tech stock that offers RSUs

“As we transition to become a publicly-traded company, we expect that the mix of service- and performance-based components of our equity compensation will shift,” said Uber.

To help us achieve our objectives of rewarding our executive officers for their experience and performance and motivating them to achieve our long-term strategic goals following this offering, we anticipate that performance-based vesting conditions applicable to RSUs granted to our executive officers will become more prevalent,” added Uber.

Uber employees see downside to RSUs

While Uber’s IPO has been successful, there was an unexpected tax burden to its employees. When the IPO launched, Uber recorded its shares at $45. The company tied the restricted stock unit settlement to its IPO launch in 2019. Uber was optimistic that the stock would rise and give a bigger payoff to employees.

In a letter to employees in May 2019, Uber hoped that the move would “mitigate the risk that the company could be responsible for paying a significantly higher amount in taxes if the stock price increases meaningfully after the IPO.

However, the opposite happened. Uber stock dropped to $23. Because the stock fell, employees have to pay extra taxes on capital losses. If the stock had gone up, Uber and its employees would have had to pay less tax in the long run. Employees at the time noted how the extra tax bill shocked them at the time.

“Word started dripping out to say, ‘Hey, I actually owe quite a bit of money to the government. There was a bit of panic and a lot of anxiety’,” said the former employee.

Uber’s RSU is cautionary tale for employees

While Uber offers generous benefits to employees like RSUs, at first, they weren’t implemented with the best advantages to employees. Barbara Baksa, director of the National Association of Stock Plan Professionals, noted that Uber thought its RSUs would rise as its stock was supposed to grow.

“If you think that you’re going to IPO and the stock price is going to continue to accelerate and in six months that stock is going to be worth a lot more, then it would definitely be to the employees’ advantage to have the tax withholding done at the IPO because it would reduce their tax liability and start their capital gains earlier,” said Baska.

Parkworth Wealth Management principal Bruce Barton said that Uber and other tech companies have untraditional ways to compensate employees. Restricted stock units are part of a new compensation package.

“We’re talking about large private companies that got very large, very fast and had to adopt this nontypical way to compensate employees. They’re still experimenting,” said Barton.

Uber offers generous RSUs, but employees must be aware of the possible tax responsibilities they may have when they receive them.

3. Apple

Apple stock rises during COVID-19

The tech giant’s stock skyrocketed by 46%, during the nationwide shutdown. Credit Suisse analyst Matthew Cabral raised his price target on Apple stock because the company’s App revenue grew 35% over the last few months.

“Despite a slow start, increased screen time amid widespread ‘stay at home’ measures is now translating into a rapid acceleration in App Store revenue,” wrote Cabral in a note to clients.

“We’re[Credit Suisse] encouraged by building App Store momentum, both as evidence of Apple’s ability to increasingly monetize its nearly 1 billion iPhone user base and in support of multiple expansion for the stock as the mix shifts to higher-quality, more recurring revenue,” added Cabral.

Evercore ISI analyst Amit Daryanani also expects Apple stock to rise as customers buy more Apple Watches and other devices.

“We expect wearables and services to sustain double digit growth driven by uptick in [average revenue per user] and better monetization of the install base,” said Daryanani.

Daryanani also expects Apple stock to outperform as the corporation recently announced that it would make its own chips in-house.

“It is encouraging that Apple continues to demonstrate its leading chip design capabilities as in-housing semi design remains key to product margin expansion,” noted Daryanani.

Apple’s restricted stock units expanded to many employees

Apple (NASDAQ:AAPL) has a generous restricted stock unit package for employees. The RSUs were implemented by CEO Tim Cook in 2018.

The tech company revealed that it will offer $2500 in restricted stock units to some employees. Cook explained the RSU compensation in an email.

“To show our support for our team and our confidence in Apple’s future, we’ll be issuing a grant of $2,500 in restricted stock units to all individual contributors and management up to and including Senior Managers worldwide. Both full-time and part-time employees across all aspects of Apple’s business are eligible,” said Cook.

While many employees received many RSUs, Cook benefitted the most from restricted stock units. When he reached the five-year mark of leading Apple, he gained 700,000 RSUs as part of a whopping $100 million bonus compensation deal.

Apple RSUs can be beneficial to part-time and full-time employees if they stay with the company for the long haul.

4. Verizon

Verizon(NYSE:VZ) offers substantial restricted stock units to employees. The phone company’s early adoption of 5G technology and high-paying dividend make the stock attractive to Goldman Sachs analysts. The analysts rate Verizon as a buy.

“We add Buy-rated VZ to the Conviction List as we see the stock offering investors the most attractive combination of total return and risk owing to its stable wireless business, well-covered dividend (4.6% yield) and strong balance sheet,” noted the analysts.

“We believe Verizon’s financial performance will not be materially impacted by a short-term economic shock. This is because a large majority Verizon’s revenues come from selling wireless connectivity services to consumers and businesses in the US,” added Goldman Sachs.

Verizon’s restricted stock units help employees

Verizon’s” Stock Together” program gives RSUs to its employees. Verizon RSUs have a three-year vesting period. On a graded vesting schedule, workers receive one-third of the units on the anniversaries of the date they started with Verizon. In order to receive the RSUs, an employee has to stay through the entire vesting period. If an employee leaves before the vesting period is over, an employee can get the RSUs depending on the reason they left.

In the Verizon RSU program, the amount awarded to employees depends on certain factors. Verizon gives the restricted stock units after dividing the employee’s fixed dollar amount by Verizon’s stock price at the end of the vesting date.

If an employee’s award amount is $3,000 and Verizon’s stock price on the vesting date is $50, the equation is 3,000/50. In that equation, 3,000/50=60. So, a Verizon employee will receive 60 RSUs at the end of each vesting date.

5. Bank of America

Despite the difficulty banks had during the recession, Bank of America (NYSE:BAC) still had a strong Q1 2020. The bank’s CEO, Brian Moynihan, touted the company’s $22.8 billion revenue.

“Our results reflect the strength of our balance sheet, the diversity of our earnings, and the resilience of our teammates to serve clients around the world. Despite increasing our loan loss reserves, we earned $4 billion this quarter’,” said Moynihan.

Bank of America offers large RSU bonuses to employees

During the bull market of 2019, the Bank of America gave 200 to 500 restricted stock units to part-time and full-time employees. The RSUs are for employees that earn between $100,000-$350,000 a year. In this graded vesting period, employees are given the RSUs over four years at the same annual time. Moynihan wrote in a company email about how he wanted the RSUs to lead to employee retention.

“This stock award…will further align the role these teammates play with our continued performance and our shareholders’ objectives,” wrote Moynihan.

Even though the Bank of America is struggling during the global recession, there is still a strong RSU program for employees.

6. Microsoft

Microsoft (NYSE:MSFT) essentially pioneered the restricted stock unit program for workers. Bill Gates spoke about why he thought RSUs were better options for its employees.

“The fact is that the variation in the value of an option is just too great. I can imagine an employee going home at night and considering two wildly different possibilities with his compensation program. Either he can buy six summer homes or no summer homes. Either he can send his kids to college 50 times, or no times,” said Gates.

“The variation is huge; much greater than most employees have an appetite for. And so as soon as they saw that options could go both ways, we proposed an economic equivalent. So what we do now is give shares, not options,” added Gates.

Microsoft stock struggles after closing physical stores

While Microsoft stock rose 45% after physically closing stores, the company’s stock dipped 2% after permanently closing the stores. Despite the slight decline, Microsoft Corporate Vice President David Porter said the closures signal a more cloud-based system to help customers.

“It is a new day for how Microsoft Store team members will serve all customers,” said Porter. “We are energized about the opportunity to innovate in how we engage with all customers, maximize our talent for greatest impact, and most importantly help our valued customers achieve more,” said Porter.

Microsoft restricted stock unit vesting schedule

Despite the drop in Microsoft stock, the Microsoft RSUs are still significant. The restricted stock units are granted every August . After three months, new RSUs are vested five percent over five years. Employees with older grants have them vested 10% every six months in the five year vesting period.

Microsoft’s restricted unit stock system has long been a benefit to its workers.

7. Starbucks

Analysts bullish on Starbucks after stock rise

Starbucks’ growth potential in the next quarter has garnered the attention of financial experts. The investment firm Ensemble Capital, says the coffee company’s stock is a buy. Ensemble Capital is bullish on Starbucks even though many stores were closed during the COVID-19 pandemic. Ensemble Capital believes Starbucks stock can rebound once the economy re-opens this summer.

“Starbucks, which nearly tagged $100 a share over the summer as investors finally realized that the company could return to solid levels of same store sales growth, backed off earlier in the quarter before another strong quarter of same store sales growth in both the US and China reminded investors just how dominant this company actually is,” wrote Ensemble Capital.

RSU’s from Starbucks pay off quickly

Starbucks’ RSU’s are very generous. The coffee giant’s Bean Stock program gives restricted stock units to employees. CEO Howard Schultz increased the benefit in 2016. He touted the plan in a statement.

“Every day, I strive to build the kind of company that my father never had a chance to work for, one that not only cares for its people but gives them opportunities to be their best selves,” wrote Schultz in his statement.

The RSU’s vest over a two-year period. In the graded schedule, 50% of the units vest a year after an employee starts working for the coffee company. After the second anniversary of a worker’s tenure, the other 50% of the restricted stock units vest.

If an employee leaves before all the units vest, all the vested RSUs are for the employees to keep. When there are unvested restricted stock units, they are forfeited once a worker leaves the corporation.

Starbucks’ RSUs pay off for employees in a shorter period of time than other corporations. Schultz has created a restricted stock unit system that greatly helps its employees.

8. IBM

The tech company IBM( NYSE: IBM) saw its stock rise as it bought the tech company Red Hat. Red Hat’s sales increased 18% from a year earlier after the acquisition. Victoria Greene, an analyst with G Squared Private Wealth, rates IBM stock a buy. She praises the company’s focus on cloud-based technology.

“IBM’s AI is leaps and bounds ahead of competitors since they have invested heavily in it for 10 years,” said Greene.

IBM’s restricted stock units benefit employees and CEO

Because of IBM’s strong stock, the corporation’s employees receive restricted stock units over a four-year vesting schedule. The RSUs vest at 25% each year on a graded schedule. The tech company’s CEO, Arvind Krishna, gets a similar deal to his employees. IBM detailed its RSU vesting period.

“RSUs will vest 25% on June 8, 2021, 2022, 2023 and 2024, provided Krishna is an active IBM employee on these dates ( unless certain requirements are met to be eligible for continued vesting. PSUs will be adjusted based on performance and will be paid out in February 2023,” noted IBM in its SEC (Securities and Exchange Commission) filings.

IBM’s graded vesting period enables employees and its CEO to reap many benefits from its compensation package.

9. Facebook

Facebook stock tumbles on ad boycott

A free speech debate is affecting Facebook stock. Facebook stock fell slightly after many companies are refusing to place ads on the social media company’s site to protest a Facebook policy. Facebook won’t take down controversial posts that are considered hate speech or misleading political ads by the companies.

The corporation pledged that it was trying to weed out misinformation on the site.

“We invest billions of dollars each year to keep our community safe and continuously work with outside experts to review and update our policies. We know we have more work to do,” said a Facebook spokesperson.

Despite the controversy, Rohit Kulkarni, executive director at MKM Partners says that the ad boycott of companies like Proctor & Gamble won’t greatly affect Facebook stock.

“Procter & Gamble is the largest advertiser in the world, but we think it accounts for less than 0.50% of FB’s revenues,” said Kulkarni.

Kulkarni agrees with Wall Street’s projections for 7% Q3 2020 growth.

“We believe near-term[Wall] Street estimates are reasonable and that there is upside potential given ad market recovery,” said Kulkarni.

Facebook RSUs helpful to workers

Despite the negative publicity, Facebook’s restricted stock units are beneficial to its employees. In Facebook’s RSU vesting period, the units vest on a quarterly schedule. In the graded vesting period, the employees vest 6.25% every three months. After vesting 25% a year, the RSU’s are fully vested after four years.

10. Intel

After the news that the aforementioned Apple was dropping Intel as a chip maker for its devices, Intel stock dropped. Despite the severance of their relationship, Intel took the partnership ending well.

“Apple is a customer across several areas of business, and we will continue to support them. Intel remains focused on delivering the most advanced PC experiences and a wide range of technology choices that redefine computing,” said Intel in a statement.

Despite the decline, some financial analysts want investors to buy the dip. Goldman Sachs rates Intel as a buy. The analysts say that more use of devices during the nationwide quarantine helped Intel.

“Despite the headwinds related to Covid-19, we are maintaining our estimates as we believe there are multiple near-term positive developments (i.e., potential strength/resilience in the high-end client CPU[ computer processing unit] and server CPU markets given a growing number of people working/studying from home) that could largely offset the headwinds (i.e., weaker consumption and enterprise spending),” wrote the analysts in a note.

Intel RSUs help employees even when they retire

The chipmaker’s restricted stock unit program is generous to employees. Intel RSUs distribute on a graded vested schedule. The restricted stock units vest at 25% over four years.

If retirees have unvested RSUs at the time of their retirement, they receive one extra year of vesting. That occurs for every five years of employment with Intel.

Intel’s restricted stock units are beneficial to workers even at the ends of their careers.

Restricted stock units a pivotal part of employee compensation

Corporations offer RSUs as a way to reward and retain employees. While it may not seem relevant to investors, they are connected. If a stock performs well, they can offer more benefits to employees and investors. With TradingSim charts and analysis, investors can find the best stocks that pay the best restricted stock units to its employees.

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