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Posted by OrderBlaster on 09-23-05 09:11 PM:

Tax problem with daytrading futures in Roth IRA?

Several custodial trust companies allow anyone to open a Roth IRA account and trade futures in it. Here are just two:

http://www.northstartrust.com/iras.asp
http://www.mtrustcompany.com/ira.html

If your income qualifies you to contribute $4,000 into a Roth IRA account this year - what a deal that looks for futures daytraders. Daytrading on margin, tax-free growth and tax-free distribution, forever more. Sign me up says the futures trader!

But then I've seen articles which kind of say this:

If you trade 'too much' i.e. make frequent day trades in your futures IRA account, you may run afoul of certain IRS tax code, which says you are engaging in producing business income. And you run the risk of the IRS disqualifying the entire tax-free status of the account. Crudely put, if you buy one futures contract and hold it for three months and it makes $200 profit while you go about your daily job, the IRS will leave you alone. But if you daytrade your $4,000 account aggressively into $500,000 by trading 10 times everyday, they might just find a way to eliminate the tax-free status of your account.

The key word being "might". It seems like a total grey area. Does anyone have any clarity on this issue? The cynic in me notes the following:

The guys who might know the most about this subject (GreenTraderTax et al) might have a vested interest in daytrading IRAs being a tax problem. Why? Because if there is no problem to frequently trade futures in an IRA, then the vast majority of people will just trade futures in their Roth IRA. Who cares about trader status, corporate entities (to write-off expenses) if you can trade 100% tax-free and keep your life simple? You can always have a separate regular trading account to write off your expenses anyway.

So the tax firms most familiar with trader tax laws might actually have a vested interest in scare-mongering about this issue. At least, that's what the cynic in me thinks!

The way I look at is is this ...if it were possible for futures traders to be taxed (if they trade too freuqently in their IRA) then wouldn't the custodial companies like North Star and Millenium have thought about this? Why would they market these products and act as custodians if there was any chance that their customers could be taxed?

Thoughts? opinions? tax rulings? ...

Posted by sprstpd on 09-23-05 09:17 PM:

Re: Tax problem with daytrading futures in Roth IRA?

Quote from OrderBlaster:

If you trade 'too much' i.e. make frequent day trades in your futures IRA account, you may run afoul of certain IRS tax code, which says you are engaging in producing business income. And you run the risk of the IRS disqualifying the entire tax-free status of the account.

Yes, I have seen people say this several times and nobody has backed it up with evidence to my liking. Good luck in getting answers to your question.

Posted by traderstatus on 09-23-05 09:39 PM:

Re: Re: Tax problem with daytrading futures in Roth IRA?

Quote from sprstpd:nobody has backed it up with evidence to my liking

The evidence is found in U.S. statutary law (TITLE 26--Internal Revenue Code) as follows, which your tax attorney can opine on how it might apply to your own situation:

The UBTI provisions are found at зз511-514. The language of зз511(a)(2)(A) and 501(a) were not conformed to include IRAs when the IRA provisions originally were enacted, but з408(e)(1) clearly indicates that the UBTI provisions apply. See з513(b)(2), defining any trade or business regularly carried on by the trust of a qualified plan to be unrelated to the plan's tax-exempt purpose.

Posted by OrderBlaster on 09-23-05 09:41 PM:

What a grey area hey? Surely someone must know something. I mean, are the people at North Star and Millenium just giving us half of a story?

Because I don't see anywhere on their web sites that says:

"Yes, we offer futures in IRAs, but please remember not to trade these accounts too frequently otherwise the IRS might disqualify their tax-free status!".

I mean, you would think that the trust companies acting as the IRA custodian who offers such accounts, might have researched this issue, right? To them, it's money being able to provide such a service.

The CPA tax firms by contrast makes more money selling the benefits of trader status and corporate entities than they do in advising you that a simple little Roth IRA could be the greastest thing ever. Then again, maybe it is the trust companies who haven't done their homework and could be inadvertently facilitiating a tax problem for their 'frequent' daytraders. Maybe it's the scare-mongering CPA trader tax firms that are right to flag this issue.

Who the hell knows?!!!

But it would be nice to have an expert research this issue. I suspect that it has never come up before. Guess when it will come up? when the first futures trader turns $4,000 in a Roth IRA into millions and then takes a tax-free distribution. The IRS will be all over it. Then we'll get our answer via the court ruling.

It sure would be nice to have the answer beforehand. I don't wanna be that guinea pig

Posted by OrderBlaster on 09-23-05 09:49 PM:

Re: Re: Re: Tax problem with daytrading futures in Roth IRA?

Quote from traderstatus:

The evidence is found in U.S. statutary law (TITLE 26--Internal Revenue Code) as follows, which your tax attorney can opine on how it might apply to your own situation:

The UBTI provisions are found at зз511-514. The language of зз511(a)(2)(A) and 501(a) were not conformed to include IRAs when the IRA provisions originally were enacted, but з408(e)(1) clearly indicates that the UBTI provisions apply. See з513(b)(2), defining any trade or business regularly carried on by the trust of a qualified plan to be unrelated to the plan's tax-exempt purpose.

TraderStatus - are you saying that trading futures freuquently would be a problem or not? If North Star offers a custodial plan to trade futures then trading futures for retirement purposes, is that plan's purpose. Surely there can be no question that trading futures in an IRA is legal and legimate, otherwise companies like North Star and Millenium are openly breaking the law.

So I missed what you were saying. Are you saying that your interpretation of certain tax laws means that I can trade my Roth IRA futures account once a week, but not 10 times a day?

Please elaborate.

Posted by OrderBlaster on 09-23-05 10:19 PM:

I don't get it. I looked at those tax laws and couldn't see anything relevant. What the heck do the laws around "unrelated business income" have to to with daytrading futures or stocks in an IRA account?

I would think that trading/investing for retirement (regardless of how active you are)...is actually quite "related" to the purpose of the account.

Where on earth is the link between trading frequently and unrelated business income. How are the two concepts linked together? And if there is some bizarre link, do the people making such a link believe that Millenium and North Star trust companies are advertising potential tax problems for their clients?

I don't get it

Posted by OrderBlaster on 09-23-05 11:38 PM:

I found this link

http://www.greencompany.com/Traders...adingretirement

About two thirds of the way down is written:

"This raises an important question of great concern to many traders. Will the IRS consider day or swing trading in an IRA account a camouflaged ?profit-producing? activity that is subject to UBTI?"

But no clear answer is given. So is this a genuine grey area in the tax law be concerned about, or is it just scare-mongering? I mean, how can trading activity be considered "profit producing" if the money is inside an IRA account and not accessible without penalty? Since when does actively trading equate to the concept of UBTI? And if there is such a link, then who gets to define the parameters. If I trade 10 times a day ..is that a profit producing UBTI activity, whereas only once a day is not? Suppose I trade 10 times today and 1 time tomorrow. Does I owe UBTI tax from the day I traded 10 times, but not the day I traded one time?

But let's go with the theory (which looks dubious to me) that frequent daytrading in an IRA could cause a problem. How about this scenario:

Suppose I don't even trade the the futures IRA account myself. Suppose I fill in a power of attorney with the futures broker to have my old high-school buddy Fred trade it He's the guy doing all the buying and selling. Not me. I'm not personally dealing in anything. So even if active daytrading is taking place, it's not being done by me. It wasn't me making the money and I never paid Fred a penny for his services. He is just a kind friend of mine. Is there an IRS camera filming the guy who is actually clicking the mouse to buy/sell?! The paperwork says it was Fred when the account was opened so it must have been Fred. All futures trading profits would have been 100% passive to me personally.

Then what?

Posted by Free Thinker on 09-24-05 12:05 AM:

Re: Tax problem with daytrading futures in Roth IRA?

i dont believe it and until i hear of some actual cases where the irs actually made a ruling i wouldnt worry about it. until then the roth ira is the ultimate trading vehicle.

Quote from OrderBlaster:

Several custodial trust companies allow anyone to open a Roth IRA account and trade futures in it. Here are just two:

http://www.northstartrust.com/iras.asp
http://www.mtrustcompany.com/ira.html

If your income qualifies you to contribute $4,000 into a Roth IRA account this year - what a deal that looks for futures daytraders. Daytrading on margin, tax-free growth and tax-free distribution, forever more. Sign me up says the futures trader!

But then I've seen articles which kind of say this:

If you trade 'too much' i.e. make frequent day trades in your futures IRA account, you may run afoul of certain IRS tax code, which says you are engaging in producing business income. And you run the risk of the IRS disqualifying the entire tax-free status of the account. Crudely put, if you buy one futures contract and hold it for three months and it makes $200 profit while you go about your daily job, the IRS will leave you alone. But if you daytrade your $4,000 account aggressively into $500,000 by trading 10 times everyday, they might just find a way to eliminate the tax-free status of your account.

The key word being "might". It seems like a total grey area. Does anyone have any clarity on this issue? The cynic in me notes the following:

The guys who might know the most about this subject (GreenTraderTax et al) might have a vested interest in daytrading IRAs being a tax problem. Why? Because if there is no problem to frequently trade futures in an IRA, then the vast majority of people will just trade futures in their Roth IRA. Who cares about trader status, corporate entities (to write-off expenses) if you can trade 100% tax-free and keep your life simple? You can always have a separate regular trading account to write off your expenses anyway.

So the tax firms most familiar with trader tax laws might actually have a vested interest in scare-mongering about this issue. At least, that's what the cynic in me thinks!

The way I look at is is this ...if it were possible for futures traders to be taxed (if they trade too freuqently in their IRA) then wouldn't the custodial companies like North Star and Millenium have thought about this? Why would they market these products and act as custodians if there was any chance that their customers could be taxed?

Thoughts? opinions? tax rulings? ...

__________________
http://www.youtube.com/watch?v=OPs_j1EEplI&feature=feedwll&list=WL

Posted by traderstatus on 09-24-05 12:52 AM:

Quote from OrderBlaster:do the people making such a link believe that Millenium and North Star trust companies are advertising potential tax problems for their clients?

Brokerages are not US Income tax advsors. Further, the advertising by Brokerages is governed by the SEC, not the IRS. It would not necessarily be appropriate for a brokerage to discuss individuals tax "problems" as you call it.

What you are calling a tax problem, other people might think of as just routine. IRS tax form 990-T (the applicable tax form for UBTI) might be considered no more of a "problem" than is IRS tax form 1040.

Posted by stockripper on 09-24-05 01:12 AM:

thats bull crap. i use green and company for my regualr trading taxes. i'd say 100% it means if your only job is daytrading your ira for income that you withdraw in regular increments then yes you could have a problem. but if you ahve a regualr job or day trade a regular account for a living then never a problem. the irs never see's how many trades you amke in an ira they jsut get the balance every year. for gods sake they don't even ask for options records so why would they care about this

Posted by sprstpd on 09-24-05 01:26 AM:

Quote from traderstatus:

What you are calling a tax problem, other people might think of as just routine. IRS tax form 990-T (the applicable tax form for UBTI) might be considered no more of a "problem" than is IRS tax form 1040.

I am looking at the instructions for IRS tax form 990-T.

Who Must File

Any domestic or foreign organization
exempt under section 501(a) or section
529(a) must file Form 990-T if it has gross
income from an unrelated trade or
business of $1,000 or more. See
Regulations section 1.6012-2(e). Gross
income is gross receipts minus the cost of
goods sold. (See Regulations section
1.61-3.)

Now suppose I am an individual trader with a self proprietor trading business. And then I also trade actively in my Roth IRA. Am I considered a "domestic organization"? Where is the term "domestic organization" defined?

Posted by danoXP on 09-24-05 01:47 AM:

Trading is not a business. Unless someone is paying you to trade or you collect fees from a 3rd party. It is investment income as long as it is your own money.

Go to town trading your IRA ... all you will get is 1099 form that is not reported to the IRS by your broker at the end of the year.

I have never heard of anybody being questioned about using their IRA to "trade as a business" by the IRS. And I subscribe to the IRS warning newsletter for 5 years.

Bunch of crap.

Posted by sprstpd on 09-24-05 01:51 AM:

http://www.fool.com/taxes/2004/taxes040924.htm

This is one of the few articles I can really understand all the terminology. It seems to imply that what I am talking about is not UBI.

However, the question is, if I have a trading business (sole proprietor), does that somehow make my personal IRA taxable if I use the same sort of trading methods in it as I do in my business? Makes no sense at all. Does that mean I could create two trading methods, one solely for my IRA and I would be okay?

How about a person who doesn't own a trading business and they actively trade in their own IRA. There is no business to get in the way - that can't possibly be UBI, right? Or is it the fact that trading regularly in the IRA automatically makes it a business in the eyes of the IRS? In which case, the laws for what deems "substantial activity" for trading are not set in stone either.

The more that I think about this, the more that I think that the IRS would have a really tough case proving this stuff. And that makes me think it is worth the risk of hyper-trading in your IRA. The tax benefits could be enormous, while the risk of paying taxes is probably low. Reward to risk seems pretty high to me.

Posted by OrderBlaster on 09-24-05 03:07 AM:

Quote from traderstatus:

Brokerages are not US Income tax advsors. Further, the advertising by Brokerages is governed by the SEC, not the IRS. It would not necessarily be appropriate for a brokerage to discuss individuals tax "problems" as you call it.

What you are calling a tax problem, other people might think of as just routine. IRS tax form 990-T (the applicable tax form for UBTI) might be considered no more of a "problem" than is IRS tax form 1040.

The firms to which I was referring (Millenium and North Star Trust companies) are not brokerages. They are trust companies who among other things act as custodian for a brokerage account. So it might be logical to conclude that they know something about trading in an IRA.

I don't get where you are coming from TraderTax. I have never seen anything, EVER, anywhere, that suggests that trading with great frequency in a futures IRA account has anything whatsover to do with the subject of unrelated business income. I mean, has there EVER been a futures trader where the IRS rebutted the tax-free status of his IRA trading account? Ever? Not to my knowledge.

You run a trader tax company, so does Green Trader Tax, who also gave the impression that daytrading in an IRA might be a problem. Hmmmm ....

Let's see. If traders start doing moronically simple things like trading tax-free in their IRA, I guess that means less revenue in selling more complicated tax strategies to people. Call me a cynic, but TraderTax, I just don't get your point here.

Posted by traderstatus on 09-24-05 03:17 AM:

Quote from sprstpd:that makes me think it is worth the risk of hyper-trading in your IRA. The tax benefits could be enormous, while the risk of paying taxes is probably low. Reward to risk seems pretty high to me.

Of interest to me would be a discussion by people who have hyper-traded their straight, directly owned IRA brokerage account, and how they faced the typical restrictions regarding free-riding under Reg T.

Also if anyone's straight, directly owned IRA brokerage account has been classified as a PDT account by the brokerage.

Posted by sprstpd on 09-24-05 05:20 PM:

Quote from traderstatus:

Of interest to me would be a discussion by people who have hyper-traded their straight, directly owned IRA brokerage account, and how they faced the typical restrictions regarding free-riding under Reg T.

This is another question. Suppose you have a trading business and you have a separate IRA that you essentially use the same strategies in. However, in the IRA you are restricted by cash account restrictions so you can't go short and you can't use money again til it settles. So in effect, the frequency of trading in your IRA is naturally muted by these restrictions. Can the IRS claim you are trading so actively in an IRA (even with these restrictions), that they can claim the profit generated is UBI? Can I not claim that since the frequency of activity in my regular account is so overwhelmingly larger than my IRA, that my IRA is not a business (in comparison)?

As for myself, I have an IRA at IB and I do trade it frequently, but within the cash account restrictions at IB. So I can only turn my money over basically once every three or four days. So I can't answer your question, sorry.

Posted by Free Thinker on 09-24-05 05:25 PM:

Quote from traderstatus:

Of interest to me would be a discussion by people who have hyper-traded their straight, directly owned IRA brokerage account, and how they faced the typical restrictions regarding free-riding under Reg T.

Also if anyone's straight, directly owned IRA brokerage account has been classified as a PDT account by the brokerage.

the op is talking about trading futures. pdt doesnt apply here.

__________________
http://www.youtube.com/watch?v=OPs_j1EEplI&feature=feedwll&list=WL

Posted by OrderBlaster on 09-24-05 09:31 PM:

Quote from traderstatus:

Of interest to me would be a discussion by people who have hyper-traded their straight, directly owned IRA brokerage account, and how they faced the typical restrictions regarding free-riding under Reg T.

Also if anyone's straight, directly owned IRA brokerage account has been classified as a PDT account by the brokerage.

Huh? First off, I'm talking futures not stocks. Secondly, if you read the posts and were familiar with how the IRA trust custodial companies work (Millenium, North Star et al) then you would know that the brokerage account is actually held in the name of the IRA custodian company not the individual. Nobody is talking about a "directly owned" account. The IRA trust company owns the brokerage account not the trader. But the trader directs the trading activity. It's called a "self-directed" IRA account. Please review the trust companies' web sites if you need more information. The links are on the first page.

I have the impression that you are not familiar with these trust companies and how they work, and as such are throwing potential tax problems into these discussions, which simply don't exist. Nor do I understand why GreenTraderTax is seemingly flagging 'frequent trading' as a potential problem in an IRA account. If I am trading a perfectly legal futures (or stock) account inside an IRA which is being held for my benefit by a third party custodial company, why the eff would the IRS care if I traded 10 times a day, or just once a year? So long as I'm not routinely drawing money out (which I agree might make it look like I was drawing income instead of investing for retirement) then who cares how many times a day I trade?!

Unless you can point to a case precedent where the IRS has disallowed the tax-free status of an IRA account because the investements inside the account were traded too frequently, then I can't fathom what the hell you are trying to flag as an issue here! Nor can I fathom what GreenTraderTax was trying to flag as an issue.

Seems like ill-informed scare-mongering to me, traderstatus. Futures trading inside an IRA is legal. Otherwise the trust companies wouldn't exist. You have yet to provide ANY rationale for why frequently day trading the account would cause the tax-exempt status of the IRA to be a problem.

When I talk apples, you respond with oranges. I have no doubt that there are occasions when people (urelated to stock/futues trading) run into the issue of UBI in their IRA accounts ....but since stock/futures trading is accepted as an IRA investment ...I see ZERO link between how many times a day you buy or sell those investments and the concept of UBI.

Posted by OrderBlaster on 09-24-05 09:47 PM:

GreenTraderTax

Didn't Robert Green used to chime in on these boards from time to time? It would be great to hear what he has to say. I have always had the impression that his tax firm knows what they are talking about.

So I would love to know what he is talking about when he warns on his web site that frequent daytrading in an IRA might be seen as a "profit-producing" activity. What is he talking about?!

I call it scare-mongering only because I fail to see any link between the frequency of buying/selling and any threat of the IRS disallowing the IRA account tax empt status. Maybe he was referring to a very limited situation - I have no idea.

Clarity for the benefit of all, from a "expert" would be a welcome addition to this topic. I heard there was some political BS about him not being a sponsor of this site, and that is why he stopped chiming in. That's just crap.

I'm sure everyone here would appreciate his inights.

Posted by Mark2m on 09-25-05 05:32 PM:

Now you are getting me really confused

As an FYI, I have trader status with the IRS, therefore it is a business. I am also trading futures even though I can't participate in the 60/40 tax situation(under trader status)

I have two Roth IRA's, wife & myself, and day trade equities. I am using IB and trade an average of 30 trades per week over both accts. Note: IB is also allowing a pseudo margin type acct with IRA's, due to the trade date and settlement date, avoiding the T+3 , plus I am allowed to trade futures with them. I haven't due to a lack of a good futures platform.

I am also trading futures for my kids acct (UGMA & UTMA) for college funds and do have seperate 1040's and estimated for them, even though they are minors.

I believe the whole matter is grey, as the IRS is probably making up the rules as they go along. Can anyone shed any light on this matter.

Posted by sprstpd on 09-25-05 05:52 PM:

Re: Now you are getting me really confused

Quote from Mark2m:

As an FYI, I have trader status with the IRS, therefore it is a business. I am also trading futures even though I can't participate in the 60/40 tax situation(under trader status)

Trader status does not prohibit you from taking 60/40 tax benefits of futures. Only if you declare mark-to-market for commodities trading will you deny yourself the 60/40 tax benefit. I am not sure why anyone would want to do this. Is there a good reason that I am missing?

Posted by traderstatus on 09-25-05 06:13 PM:

Re: Re: Now you are getting me really confused

Quote from sprstpd:Only if you declare [Sec 475] mark-to-market for commodities trading will you deny yourself the 60/40 tax benefit. I am not sure why anyone would want to do this. Is there a good reason that I am missing?

One basic example: Taxpayer has no capital loss carryforward from 2005 into 2006. He qualifies for trader status. He gets a huge severence bonus in January 2006 and uses the money to trade futures with. Significant futures losses are incurred between January 2006 and April 15, 2006. By electing Sec 475 M2M those losses are converted from 60/40 capital losses into Ordinary losses.

Posted by sprstpd on 09-25-05 07:02 PM:

Re: Re: Re: Now you are getting me really confused

Suppose you are a fortunate futures trader and you have no losses on a yearly basis. Is there any reason to elect mark-to-market on commodities trading?

Posted by Mark2m on 09-25-05 07:09 PM:

Mark to Market

Yes , I have mark to market. I have a seperate acct dedicated to this business. The reason's are as follows:
1) This was set up prior to trading futures. With stocks/mark to market, I am able to trade without worry of wash sales rules.
2) All of my expenses, seminars, trading, (between software for platform, scanning, charts, data stream) you are looking at over $250 per month, not including cable (broad band) and other computer related expenses can be expensed on Schedule C. Also included are any margin expenses, note: instead of having it on Schedule A as a % of AGI.
3) Although I submit an itemized listing of my trades, my gains which are income instead of capital gains go on the 4797 form (in essence, Bought/Sold/loss or gain in total.
Once I make enough $$ on 1256 contracts, than I will have a seperate account that will allow me to work around the mark to market declaration.
Off course the Ira and UGMA situation is different, and I have no idea what to do. There are only a few CPA's that are even aware of the nuances of trader, and mark to market status.

Posted by traderstatus on 09-25-05 07:59 PM:

Re: Mark to Market

Quote from Mark2m:Yes , I have mark to market. I have a seperate acct dedicated to this business. The reason's are as follows:
1) This was set up prior to trading futures. With stocks/mark to market, I am able to trade without worry of wash sales rules.
2) All of my expenses, seminars, trading, (between software for platform, scanning, charts, data stream) you are looking at over $250 per month, not including cable (broad band) and other computer related expenses can be expensed on Schedule C. Also included are any margin expenses, note: instead of having it on Schedule A as a % of AGI.
3) Although I submit an itemized listing of my trades, my gains which are income instead of capital gains go on the 4797 form (in essence, Bought/Sold/loss or gain in total.
Once I make enough $$ on 1256 contracts, than I will have a seperate account that will allow me to work around the mark to market declaration.
Off course the Ira and UGMA situation is different, and I have no idea what to do. There are only a few CPA's that are even aware of the nuances of trader, and mark to market status.

Mark2m, I believe that you have mentioned several misconceptions of the Commodities Sec 475 M2M election: how to make it, when to make it, what it is required for. It sounds like you have confused the з475(f)(1) election with the з475(f)(2) election, perhaps? Also you may have confused trader status with the зз475(f) elections ... and Sec 1256 reporting with other capital gain property reporting.

While it would be too much to discuss in any more detail here, it might be advisable to double check with your tax advisor what has been done, and then file amended tax returns, if appropriate.

Posted by Mark2m on 09-25-05 08:34 PM:

In answer to Traderstatus

I am unsure if you misconstrued my declaration.
First I declared trader status with the IRS. I filed the following:
Sent a letter to the IRS indicating that I wish to elect markto market, under section 475(f) of the Internal revenue code.(did this two years ago)
3115 - which indicated request for accounting change.
On my 1040 - I had the accts identified as a trader/mark to market reported as 4797 gains or losses, Schedule C for expenses.
This year I have started to trade in Futures with the above acct, and since I have elected mark to market, my understanding is I cannot participate on the 60/40 cap gains of 1256 contracts. Earning would be strictly as income.

If I am mistaken on the above matter, please advise.
Thank You.

Posted by traderstatus on 09-25-05 09:24 PM:

Re: In answer to Traderstatus

Quote from Mark2m:If I am mistaken on the above matter, please advise.

Yes, you appear to be mistaken. Most importantly, Sec 475 trader M2M is not elected by means of sending a letter to IRS. Recent published positions indicate that IRS is being very firm on this.

IMO, you should discuss these issues with your tax advisor sooner, than later.

Posted by joeyata1 on 09-25-05 10:14 PM:

mtm you must have an incompetent accountant who knows nothing about trader taxes. the letter you send in is just a declaration of wanting to elect mtm. the reason being is if you wait till year end and know you ahve a loss you screw the irs. the irs says make it by april 15th so you don't know you ahve aloss. but jsut becasue you elect doesn';t mean you ahve to do mtm. mtm is actually done with form 3115when you file your taxes. you send one in with your retunr and one to the irs in washington dc. if you hear nothing back no problem. when you elect mark to market you clearly state FOR SECURITIES ONLY. so your commodities are not under mtm and taxes at the more favirable 60/40 rule. you also can designante long term stock accounts for the more favorable long term tax rates.get a trader tax accounatant like robert green to help you

__________________
joeyata

Posted by Bitstream on 09-25-05 10:47 PM:

talking about accountants, I am now close to get at breakeven with my precedent losses dating a few years back. So far I have not paid taxes on my capital gains for obvious reasons and therefore never bothered to check what could be soon my new exposure to taxes.
I live in london and if I am not wrong the first г15000 per year are not subject to taxes (even if always been in the black) is it the case? And what can be done to minimize tax. repayments when my profits will exceed that amount?

I'd be glad to get a pm from anyone trading and living in London who has sorted out this mess and who's willing to help me.

THX in advance
PP

Posted by danoXP on 09-25-05 11:11 PM:

Re: Mark to Market

Quote from Mark2m:

Yes , I have mark to market. I have a seperate acct dedicated to this business. The reason's are as follows:
1) This was set up prior to trading futures. With stocks/mark to market, I am able to trade without worry of wash sales rules.
2) All of my expenses, seminars, trading, (between software for platform, scanning, charts, data stream) you are looking at over $250 per month, not including cable (broad band) and other computer related expenses can be expensed on Schedule C. Also included are any margin expenses, note: instead of having it on Schedule A as a % of AGI.
3) Although I submit an itemized listing of my trades, my gains which are income instead of capital gains go on the 4797 form (in essence, Bought/Sold/loss or gain in total.
Once I make enough $$ on 1256 contracts, than I will have a seperate account that will allow me to work around the mark to market declaration.
Off course the Ira and UGMA situation is different, and I have no idea what to do. There are only a few CPA's that are even aware of the nuances of trader, and mark to market status.

You elected to declare yourself to the IRS as a "trader" (not the other way around?). Why?, so you can expense $250/month? ($3k/year)? plus what, another 2k for seminars, etc..? $5k / year? $10k /year? What am I missing? Have you done the math?

By flowing the expenses thru your Schedule C don't you also pay "self employment tax" ... 12.4% (max ~$14k) and Medicare ~3% on all your income? in addition to converting all your longterm cap gains into "income" taxable at 35% marginally? see Self Employment Tax Schedule C: http://www.turbotax.com/articles/Th...e1#_What_is_the

I must be missing something here on this.

The Mark to Market is a completely seperate issue.

... back to the original point of this thread: a hypertraded IRA may catch the IRS's attention given the assumption they will make that you are dedcuting the expenses used to trade this account thru your schedule C. Now I can see you may have a problem.

Posted by Mark2m on 09-25-05 11:17 PM:

Mark 2 mark for Joeyata

I have elected two years ago, I have provided all the necessary paperwork and haven't been audited.
1) I filed my statement prior to 4/15/2003 - with my individual income tax return. declaring the first year as 2003.
2) The 3115 -(that can be submitted anytime during the elected year) basically will indicate my change in accounting, and does include the difference (481)a adjustment of the difference between the amount of income reported without the election and amount you report with the election. Yes this can be done after the fact, but is a way to keep you honest on the previous year's gains or losses. Therefore the IRS will know if you are passing over losses to other business or W2income instead of being limited to the 3K loss per year.
3) The Irs had approved my 2003 1040 , and I am presently waiting for 2004 approval since I submit by 8/15.

Note: you will find most of what I stated per publication 550. My only question for this thread was the missives based on possible IRS internvention on daytrading of IRA's and the repercussions.

Posted by traderstatus on 09-26-05 12:40 AM:

Re: Mark 2 mark for Joeyata

Quote from Mark2m:I have elected two years ago, I have provided all the necessary paperwork and haven't been audited.
1) I filed my statement prior to 4/15/2003 - with my individual income tax return. declaring the first year as 2003.
2) The 3115 -(that can be submitted anytime during the elected year) basically will indicate my change in accounting, and does include the difference (481)a adjustment of the difference between the amount of income reported without the election and amount you report with the election. Yes this can be done after the fact, but is a way to keep you honest on the previous year's gains or losses. Therefore the IRS will know if you are passing over losses to other business or W2income instead of being limited to the 3K loss per year.
3) The Irs had approved my 2003 1040 , and I am presently waiting for 2004 approval since I submit by 8/15.

Feeling good that for 2 years the IRS has not audited you, while yes it is a GOOD feeling, doesn't mean that the IRS has formulated any opinion on your tax return, rather it likely means that they haven't selected it for a random audit and further, it means that mathmatically it was probably prepared correctly.

It is unlikely from what you said that the IRS "approved" your 2003 return and will some how "approve" your 2004 return.

Nor does IRS give "approval" or consent to a form 3115 when you state on it that the Sec 475 election doesn not need their approval (on line # 1 of form 3115). There is no "permission" needed, it is made automatically the moment you drop it in the mail, it can not be denied if properly made.

Form 3115 for a Sec 475 M2M election is filed the year FOLLOWING the year of election, and not prior to. It must be filed WITH a timely filed form 1040 for the election year, which generally you can't file until February of the following year at the earliest.

If you have a defective M2M election, the IRS would not know until they review your tax return for compliance. If there are any defects, you might consider filing a protective election to make sure you definitely have M2M going foreward.

Posted by OrderBlaster on 09-26-05 01:40 AM:

Back on topic!

The thread has meandered somewhat from the original topic, so I'll pose the original question again. Specifically relating to futures trading in an IRA account, the question is this:

Some accountants have inferred that the frequency of buying & selling inside the account might cause the IRS to classify the IRA account as a profit-producing entity generating unintended business income. Thereby inferring that the IRS might have the right to tax the gains in the IRA. Seems like weird logic to me, and there is seemingly no case precedent for such logic.

I'm not talking mark to market, trader status, or regularly making early withdrawaks from the IRA. All I want to know is how the frequency of futures trading could be connceted to a possible denial of the tax-emempt status of the IRA?

Without any rationale by the CPAs who are making these inferences, I fail to understand that there is any problem. I come back to starting point. If futures trading is perfectly legal as an IRA investment, thenwhy would the IRS care how many times a day you buy and sell?

Logic says to me that so long as you are not deducting any expenses specifically connected to the futures IRA trading activity, then there cannot be a problem.

TraderStatus would you agree?

Posted by OldTrader on 09-26-05 02:26 AM:

Re: Back on topic!

Quote from OrderBlaster:

The thread has meandered somewhat from the original topic, so I'll pose the original question again. Specifically relating to futures trading in an IRA account, the question is this:

Some accountants have inferred that the frequency of buying & selling inside the account might cause the IRS to classify the IRA account as a profit-producing entity generating unintended business income. Thereby inferring that the IRS might have the right to tax the gains in the IRA. Seems like weird logic to me, and there is seemingly no case precedent for such logic.

I'm not talking mark to market, trader status, or regularly making early withdrawaks from the IRA. All I want to know is how the frequency of futures trading could be connceted to a possible denial of the tax-emempt status of the IRA?

Without any rationale by the CPAs who are making these inferences, I fail to understand that there is any problem. I come back to starting point. If futures trading is perfectly legal as an IRA investment, thenwhy would the IRS care how many times a day you buy and sell?

Logic says to me that so long as you are not deducting any expenses specifically connected to the futures IRA trading activity, then there cannot be a problem.

TraderStatus would you agree?

OrderBlaster:

The last thing I would want to rely on in making a tax decision would be my "logic". There is a great deal about taxes that isn't especially logical. My suggestion to you would be to check with a qualified tax advisor and ask your questions to them, rather than decide based on what seems logical to you.

I don't know the answer to your question. Frankly, I think it is a gray area...and there are many of these in the tax code. And because of this, it is likely to be resolved by tax court and rulings, based on individual situations and details. Nothing unusual in this by the way, this is the way most gray areas are resolved.

I've only heard about the ability to do futures in IRA's in the last couple of years. And therefore, my belief (I could be wrong on this), is that not many people are doing it.

I do know that in the real estate area people are flipping real estate within IRA's. And people are worried about the UBTI. I suspect a call to a tax attorney and/or CPA would get you an answer. If you get one I'd love to hear it.

OldTrader

Posted by crackedback on 09-26-05 03:34 AM:

I think the reversing of tax exempt status is stupid because you trade once a year or 10 times a day. Why would it make any difference.

The one reason the IRS is likely to try this is it's an area where tax revenue can be garnered, AFTER the fact.

IRA's were initially designed to be investment vehicles. They have changed character in recent years as some individuals have seen the benefits of trading inside a Roth, me included. If the IRS doesn't like the current use, they better hire a boatload of agents to make sure you aren't violating some unwritten law. Think of the sheer number of Roth IRA's out there. This is no different than the clear as mud trader status. Where do you become an active trader in an IRA or a short term investor? IMHO, it's just another gray area that the IRS can try to hammer you in case they feel like it.

Give a damn definitive answer so taxpayers can be aware of any issues they may have and everyone would be much happier and at ease. If the IRS was a public company the executives would be up on charges for not providing adequate and correct information.

Yes, I'm a CPA, and think the current tax laws are crazy, stupid, ridiculous, and favor the cronies that wrote them.....

Posted by OrderBlaster on 09-26-05 03:03 PM:

My situation is that I'm eligible to set up a Roth IRA for 2005. It'll probably be the only time in my life that my modified AGI will be less than $150K. So it'll be a one-time $4,000 investment in a Roth IRA. If I go ahead and invest this $4K in normal everyday stuff like mutual funds ...this piddly litttle account isn't going to make a damn bit of difference to my retirement! But then again, I'm a pretty reasonable futures trader so the way I look at it is to say that it's a shot to nothing to gamble with this $4,000. If I lost all of this $4,000 Roth IRA to the futures markets, it is immaterial in my life. I already have normal pension plans elsewhere.

Let's say I get 'lucky' with my piddly $4,000 Roth IRA and parlay it into a lot of money over the next several years. Are they going to bust my balls when I try to make a tax-free withdrawal? I mean, what am I supposed to do in advance to stop this potential problem. People say: contact a tax attorney. But this is not a large amount of money. It's just a lousy $4K that I might lose anyway. Given the gray area among accountants, am I really going to spend thousands to obtain a 'private letter ruling' from the IRS in advance of opening this $4,000 account. Hardly!

I just want to know if there's anything simple I can do up front to reduce the possibility of grief when I withdraw significant gains from a small investment. The only thing I can think of (given that I'm not paying thousands to get professional advice before opening a $4,000 brokerage account!) is to add the extra step of giving power of attorney to a friend to actually do the trading on the futures account. That way, it was never "me" who personally engaged in the actual buying/selling. I'd be nothing other than the beneficial owner. So when my Roth IRA account runs from $4,000 into millions, trading futures - the IRS would have even less of a case to say I was running a profit producing business in it.

Given the recent scare-mongering about this issue, I am thinking that such a step might be prudent when opening the futures account inside the IRA, even though it currently appears uneccessary under tax law.

Posted by jason_l on 09-26-05 05:02 PM:

I have looked into this recently as well.. I was able to get more clarification when looking into real estate investing, etc, via a IRA.

In these scenerios, they speak of UBI in terms of you buying a rental property via your IRA, yet you try to collect "mamangement fee's" outside of the IRA for running the rental 's (or try to contract to yourself for maint, etc). Another example was investing in a partnership via your IRA (hedge fund, business deal, etc), where you as an individual earn income from the deal OUTSIDE of the IRA.

Basicly, the jist of it from what I could tell was that you can't use IRA funds to invest in an entity that you also happen to derive taxable income from OUTSIDE of the IRA. You can't take your retirement account, start a hedge fund/business/etc, and then take some sort of salary from that business. If you derive any income from the business entity outside of the IRA, then it's a no-no.

Example: I can invest my IRA into a fund YOU run, or a business ran by YOU, but YOU can't do the same with your own account..

Posted by CoolTrader on 09-26-05 06:01 PM:

jason_l, your comment makes sense to me. If IRS would pick on you simply because you trade an IRA account from thousands into millions, I can't imagine the consequence: Day trading equities would also lose tax benefit, trust companies would go out of business, a big class action lawsuit would happen because the owners of huge IRA accounts could afford the best lawyers, how about the little guys with small accounts at IB? ...

Posted by trdr25 on 09-26-05 06:04 PM:

Why would someone use a custodial account to trade their IRA when they could use a broker like IB where they can trade anything in one IRA account? I read through those custodian sites but they don't mention what their fees are. This is probably because their fees are too high to mention and when people find out, not many would bother with it.

__________________
a fool and his money should have never gotten together in the first place

Posted by CoolTrader on 09-26-05 06:13 PM:

Quote from trdr25:

Why would someone use a custodial account to trade their IRA when they could use a broker like IB where they can trade anything in one IRA account?

If you want to use other platforms than IB.

Posted by traderstatus on 09-26-05 06:15 PM:

Quote from trdr25:Why would someone use a custodial account to trade their IRA when they could use a broker like IB where they can trade anything in one IRA account? I read through those custodian sites but they don't mention what their fees are. This is probably because their fees are too high to mention and when people find out, not many would bother with it.

People use these boutique firms so they can invest in things a broker like IB will not allow you to do. For example a Private Placement, Oil Drilling and Development, Real Estate Rentals are all quite common. Even "farther out" investments are had for those who desire them.

Posted by traderstatus on 09-26-05 06:36 PM:

Quote from jason_l:In these scenerios, they speak of UBI in terms of you buying a rental property via your IRA, yet you try to collect "mamangement fee's" outside of the IRA for running the rental 's

There are basically three issues that are being kicked around here in one way or another:

1) prohibited transactions, self-dealing with the IRA. e.g. taking a fee from the IRA

2) trade or business being operated with IRA funds

3) use of margin / debt to get leverage on top of the actual funds available.

Item #1 closes down the IRA retroactive to January 1st in the year the prohibited transaction first occurs. This is a serious event and is generally considered an absolute disaster to the IRA owner.

Items #2 and #3 are considered to be putting an unfair advantage in the hands of the IRA in comparison to fully taxable situations and therefore to even the playing field a tax is assessed against the IRA. This tax is payable on IRS form 990-T annually. This is a common event, and form 990-T is a commonly filed tax form used by tax deferred and tax free entities. Most IRAs are exempt from this because even if they do have some UBTI they do not exceed the $1,000 annual exclusion.

Posted by CoolTrader on 09-26-05 07:05 PM:

Quote from traderstatus:

Items #2 and #3 are considered to be putting an unfair advantage in the hands of the IRA in comparison to fully taxable situations and therefore to even the playing field a tax is assessed against the IRA. This tax is payable on IRS form 990-T annually. This is a common event, and form 990-T is a commonly filed tax form used by tax deferred and tax free entities. Most IRAs are exempt from this because even if they do have some UBTI they do not exceed the $1,000 annual exclusion.

What's your point here? If your trading profit is above $1000/year in a IRA, you owe tax?

Posted by danoXP on 09-26-05 07:22 PM:

Quote from trdr25:

Why would someone use a custodial account to trade their IRA when they could use a broker like IB where they can trade anything in one IRA account? I read through those custodian sites but they don't mention what their fees are. This is probably because their fees are too high to mention and when people find out, not many would bother with it.

Maybe you would want to buy a mutual fund? ... or a small cap stock? ... or a non-electronically traded bonds? ... some CDs?

But, I agree with you that IB offers a very compelling IRA account (futures) and a very nice management fee ($0 or $120/year max).

Posted by PatternMaster on 09-26-05 07:36 PM:

Humm, so maybe I should convert my Traditional IRA(IB IRA rolled over from another deferred account) to a Roth IRA. Then trade futures in the new Roth IRA, say positon trading every two to three weeks. The new Roth IRA over the next xx years gains considerably and when 70 1/2 take distributions tax free? In comparsion to the Trad. IRA where the distributions would be taxed.

Do I have that correct?

Posted by sprstpd on 09-26-05 09:24 PM:

Quote from jason_l:

Basicly, the jist of it from what I could tell was that you can't use IRA funds to invest in an entity that you also happen to derive taxable income from OUTSIDE of the IRA. You can't take your retirement account, start a hedge fund/business/etc, and then take some sort of salary from that business. If you derive any income from the business entity outside of the IRA, then it's a no-no.

Example: I can invest my IRA into a fund YOU run, or a business ran by YOU, but YOU can't do the same with your own account..

What does "invest in an entity" mean? Suppose I am a systems trader and I am trading my Roth IRA and a margin account using similar signals. I derive trading profits from the margin account and it is classified as a self proprietor business (so a business in my name). There is no "salary" involved. The only income I receive is when I make a good trade. Would I be deriving income from a business entity outside of the IRA? In other words, I am not investing the IRA in a fund that pays a salary to the person running the fund. It is just my personal account.

Posted by OrderBlaster on 09-26-05 09:47 PM:

Quote from PatternMaster:

Humm, so maybe I should convert my Traditional IRA(IB IRA rolled over from another deferred account) to a Roth IRA. Then trade futures in the new Roth IRA, say positon trading every two to three weeks. The new Roth IRA over the next xx years gains considerably and when 70 1/2 take distributions tax free? In comparsion to the Trad. IRA where the distributions would be taxed.

Do I have that correct?

Roth IRA is tax-free upon distibutions. Age is 59 1/2 when you can take distributions not 70 1/2. But to roll from a traditional IRA into a Roth IRA, there are two things to note:

1) You can only make such a rollover in a year where you earn <$100K income (married filing joint)
2) You will pay tax on the gains that are rolled over

In other words you take a tax hit at the time of rollover (assuming you are eligible income-wise to rollover) but then everything is 100% tax-free thereafter. So whether rolling from a traditional to a Roith IRA makes sense will depend on the numbers and the projected returns. There is no right and wrong answer. Clearly the further you are from retirement, the more it might pay to take the initial tax hit to switch to a Roth IRA and go tax-free from that point onwards.

As for only trading futures every few weeks, there is nothing said anywhere that trading them with one frequency vs another is likely to cause a problem. It's been "inferred" but not spelled out. Trading futures does not generate unrelated business income, and if the IRA custodian allows you to trade futures then I can't see what the issue is, regarding frequency of trades.

As to the one guy who asked why would anyone use a trust company (e.g. Millenium & North Star) instead of just using IB for their IRA ...the answers are:

a) IB uses a trust company themselves. They are not the custodian for their IRA accounts. There are fees involved with this arrangement I'm sure.

b) The other trust companies let you choose from a wide variety of different brokers and offer greater flexibility of investements

c) The fees for holding your futures IRA are cheap with North Star and Millenium (check out their web sites)

The way I see it, the Roth IRA is the "ultimate" vehicle for trading futures.

Posted by jason_l on 09-27-05 04:20 PM:

Quote from sprstpd:

What does "invest in an entity" mean? Suppose I am a systems trader and I am trading my Roth IRA and a margin account using similar signals. I derive trading profits from the margin account and it is classified as a self proprietor business (so a business in my name). There is no "salary" involved. The only income I receive is when I make a good trade. Would I be deriving income from a business entity outside of the IRA? In other words, I am not investing the IRA in a fund that pays a salary to the person running the fund. It is just my personal account.

that was just my terms.. an entity meaning anything you could possibly invest money into. a business partnership, real estate etc..

Let's say you decide to start a hedgefund. You can't invest your IRA funds into it, since you get PAID to run THAT fund. In essence you would be receiving your own IRA money w/o paying any withdrawal penalties. But you could invest those funds in someone elses fund. The whole point I think is simple: you can not syphon tax-free money out of your IRA into your pockets via a backdoor.

Posted by traderstatus on 09-28-05 01:23 AM:

I came across these paragraphs today and remembered our discussions here. I believe that they are well written and informative. Here they are verbatim, without further commentary from me:

What is UBTI and how is it different from UBIT?

UBTI is an acronym for Unrelated Business Taxable Income. UBTI generally occurs when a plan generates income from operating a business, acquiring or improving property through debt financing, or certain partnerships from which the plan owns an interest.

UBTI is income generated by a trust when engaging in business activity that is unrelated to its general purpose. Self-directed IRAs were created for long term investing, and when it purchases an asset that produces income unrelated to the intent of the УplanФ then that income is subject to taxation Ц which means your IRA will be paying taxes on profits generated from your business purchase.

UBTI is subject to Unrelated Business Income Tax or UBIT. UBIT is a very steep and complicated form of taxation. Much like Federal Income Taxes, UBIT is set to a laddered schedule. However it is compressed on much tighter levels. In 2005, UBIT is taxed at the following rates:

$0 - $2,000 = 15%
$2,000 - $4,700 = 25%
$4,700 - $7,150 = 28%
$7,150 - $9,750 = 33%
Over $9,759 = 35%

UBIT was implemented to keep the playing field even between plans that open businesses and the typical small business owners. If a plan or self-directed IRA was able to purchase a business and did not have to pay any taxes, it would be able to deliver an identical product at a discount. UBIT mitigates that risk for the typical business owner.

UBIT is one of the most complicated areas of taxation in the Internal Revenue Code. It is imperative you seek professional help to make sure you do not incur any severe tax penalties.

What is UDFI?

UDFI stands for Unrelated Debt Financed Income. UDFI is income generated by an IRA, or other retirement plans, through debt-financing or leverage. UDFI is taxed much like UBTI and is similarly as complicated. UDFI only applies to the profit realized through debt and is based on the highest amount of leverage carried within the past 12 months. Refer to IRC з 514(a) (1).

For example: Your self-directed IRA purchased a piece of raw land in 1999 for $100,000 using a non-recourse loan with 50% down. In 2004, you sold that same piece of property to a developer for $200,000. Your IRA had secured a 50% loan to value (LTV) on the property, and letТs assume that you never paid down any principle because it was an interest only note. Fifty percent of the profit would be subject to UBIT because it was generated by money that was not related to the self-directed IRA.

As a side note Ц UDFI does not apply if the debt is paid off 12 months prior to the sale of the property. If the self-directed IRA can pay off its loan early Ц it may not have to pay UBIT at all! If you are intending to purchase assets inside a self-directed IRA using debt-financing, please consult with a competent tax advisor.

Quotes of the day:

It just isn't worth having your IRA disqualified because your greed is bigger than your brain.

Your IRA is much too important for you to step over the line and violate the governing rules.

Posted by OrderBlaster on 09-28-05 02:31 AM:

Quote from traderstatus:

Self-directed IRAs were created for long term investing, and when it purchases an asset that produces income unrelated to the intent of the ?plan? then that income is subject to taxation

Traderstatus, I'm not asking for advice just your personal opinion on this question:

With regard to the above quote, how would you classify buying and selling futures contracts inside an IRA? We're not talking stocks here, only futures. Outside the IRA, let's say the person is buying/selling futures in a regular futures account and filing tax returns as an investor using Form 6781 for his futures profits, which means they are being declared as capital gains subject to 60/40 tax treatment.

For such a futures 'investor' who also has an IRA in which he daytrades futures contracts ...are you suggesting that the tax-free status of the IRA might be disqualified? If so, what is your rationale? The purpose of trading in the IRA is for long-term capital appreciation for retirement, so who cares how often a person buys/sells? Futures contracts do not in and of themselves generate income.

You know what ...maybe filing as an investor for regular trading profits (instead of trader status) might guarantee the IRS doesn't think anything odd about the capital gains in your futures IRA. Perhaps it is declaring trader status for regular futures trading that risks geting the profits in your futures IRA seen as UBTI. Maybe those 'investors' are onto a good thing?

There are plenty of people who want to actively trade stocks or futures in their IRA in addition to outside the IRA. But if they file trader status thereby declaring their non-IRA activity to be "income" then perhaps the IRS could say "well then, it's bloody well income inside the IRA too" and disqualify the tax status of the IRA. In other words the IRS might say to the person: "listen Mr. Trader, you can't tell me on the one hand that you sit at your screen all day and are a trader with income doing this for a living ...and then turn around and tell me that the same activity in your IRA account is a long-term investment. You can't have your cake and eat it too."

This appears to be a serious problem. Trader tax firms have been selling the benefit of trader tax status to their active daytrading clients for years. The ability to daytrade in an IRA is fairly recent. If those daytrading clients suddenly start losing the tax-emempt status of their IRAs, and the reason was because they declared themselves to be traders with 'income' outside the IRA ...then the trader tax firms are going to be faced with a mass of very pissed off customers.

What benefit would it be to declare trader status to write off that seminar expense, if a by-product is that the IRS later shreds apart your IRA with tax and penalties? The Trader Tax firms need to get this issue sorted out FAST. In the meantime, "investors" are looking better by the minute with their safe tax-free IRA accounts ...

Posted by stockripper on 09-28-05 03:11 AM:

this discusioion is getting way far out of hand. i had a friend who daytraded his 200k ira for a living back in 1997 before the days of not being able to daytrade ira's. one msut remeber you're hit hard with the 10% penalty and paying full taxation for taking out withdrawels. also you can't write loses off? he ended up losing 1/2 his ira in 18 months. I'D SAY WITHOUT HESITATION IF THE IRS EVER EVVEN LOOKED AT THIS IT WOULD BE FROM SOMEONE SOLEY TRADING THERE IRA AND TAKING SYSTEMATIC WITHDRAWELS OUT OF IT LIKE 4-10 PER YEAR TO LIVE ON. THE ONLY WAY THE IRS WOULD KNOW SOMEBODY WAS USING THERE IRA FOR INCOME GENERATING PURPOSES WOULD BE BY SEEING THE WITHDRAWELS. all the irs gets every year is a total account value from your broker not how many trades one made.. also if you trade in other accounts for your incom,e there would never be a problem no matter how much you traded your ira.

Posted by OrderBlaster on 09-28-05 03:54 AM:

Quote from stockripper:

this discusioion is getting way far out of hand. i had a friend who daytraded his 200k ira for a living back in 1997 before the days of not being able to daytrade ira's. one msut remeber you're hit hard with the 10% penalty and paying full taxation for taking out withdrawels. also you can't write loses off? he ended up losing 1/2 his ira in 18 months. I'D SAY WITHOUT HESITATION IF THE IRS EVER EVVEN LOOKED AT THIS IT WOULD BE FROM SOMEONE SOLEY TRADING THERE IRA AND TAKING SYSTEMATIC WITHDRAWELS OUT OF IT LIKE 4-10 PER YEAR TO LIVE ON. THE ONLY WAY THE IRS WOULD KNOW SOMEBODY WAS USING THERE IRA FOR INCOME GENERATING PURPOSES WOULD BE BY SEEING THE WITHDRAWELS. all the irs gets every year is a total account value from your broker not how many trades one made.. also if you trade in other accounts for your incom,e there would never be a problem no matter how much you traded your ira.

What you say makes complete sense to me. So I am perplexed why have we got TraderStatus on here (a specialist CPA on trader taxes) flagging this issue? And why is Greentrader, another trader tax specialist, flagging this issue on one of their web pages? That is what concerns me! Failing a clear answer from either of these specialists, I am speculating that it might have something to do with declaring trader status outside the IRA. It's bizarre how these specialists can't/won't explain their concerns ...

Posted by stockripper on 09-28-05 05:39 AM:

it reminds me of when i first used green to do my taxes in 1999. all were scaring me i'd be audited for doing 1 billion in sales and having a 1600 page 1099. enver a problem. i've asked green about the ira issuer years ago. he him hawed around. mjsut like what defines a full time trader? greens told me at least 3 trades a day and it has to be a very substantial portion of your income and you can't have another job. many others will say you can have a job. millions of people day trade there ira. now i suppose if you daytraded it full time and took withdrawels every month they could challange it. what about the guy who works at ibm and trades his ira 15 times a week at work on the net. to say they could disallow him is insane. the irs would open up a can of worms. also as i said oustise taking many withdrawels how could the irs ever keep tabs on how manby times people trade there account. i have an ib roth and trade it at least 5-10 times a week with options and futures. didn't ib jsut change there ira so now you can day trade it and ahve instant access to the funds with no 3 day wait? that sure don';t sound like one can't daytrade it. remember accounatns like fear and chaos as it brings them businmess

Posted by OrderBlaster on 09-28-05 04:41 PM:

Quote from stockripper:

remember accounatns like fear and chaos as it brings them businmess

This is exactly what I'm beginning to think this is all about. The trader tax specialists are the ones saying that daytrading your IRA might be a problem - nobody else. Yet none of them have indicated any case precedent to back up their concerns. Seems to me that their concern stems not so much as from potential IRS issues, as it does their own needs to scare people away from IRA trading. These specialists help people reduce tax via trader status, entities etc. But such help can't come close to the Roth IRA which totally eliminates tax altogether.

If IRAs can be daytraded tax-free (Roth) or tax-deferred (Traditional), then people will gravitate towards primarily trading their IRAs for retirement. In which case who needs to bother with setting up businesses with a company pension plan, solo 401k plan etc.? i.e all the stuff they make money pitching. If the IRA can be daytraded tax-free without any problem, demand for these other products might fall.

Maybe that's what this scare-mongering is really all about ....?

Posted by brokershopping on 09-29-05 04:42 AM:

One way to look at it is from a risk-reward standpoint. What is the potential gain from daytrading your IRA vs the potential cost if you were audited and forced to pay penalties? Also take into consideration the probability of the "negative" event.

I have never heard of anyone getting "busted" by the IRS for running a trading business out of their IRA, and I don't see any unambiguous wording saying that it is forbidden. So my impression is that the probability of it actually being illegal AND getting audited AND being convicted is extremely low. I don't know what the cost might be if you were caught, but suppose you had to pay tax on all the money in your IRA and a 20% penalty. No, that wouldn't be fun but it probably wouldn't knock you out of the game. If you were a successful trader, it would only take a few years of compounding your gains tax-free until it would pay for the worst-case scenario anyway. You could daytrade your IRA, get audited, and pay dearly, but you could also be long the e-mini's on some sunny afternooon when terrorists decide to vent their frustrations by nuking a few major cities.

There may indeed be some risk, but we get to enjoy that whenever we have a trade on...

Posted by OldTrader on 09-29-05 05:40 AM:

Just a few thoughts.

The vast majority of traders fail to make money as I understand it. Upwards of 80-90%. So it seems fairly unlikely just on this basis alone that the IRS is going to have many "test cases" for trading futures in an IRA! Let alone situations where someone starts with $4K and makes a few millions off it.

Next, there are income limitations to the Roth IRA. Therefore, it would seem that the most likely traders to make "millions" in a Roth IRA are also the least likely to qualify to have one.

But to take it a step further, whether doing futures in a regular IRA makes sense would need to be penciled out. Here's what I mean: futures already have a tax preference. 60% of the gain is long term. Now assume you do futures in a regular IRA. When you take the money out, it comes out a regular income tax rates. In other words, you lose the preference of long term gains. What you gain is the deferred nature of taxation. Whether that makes up the difference would need to be penciled out.

But let's assume for a second that you're one of those traders who didn't make all that much money, so you could do a Roth IRA. Yet you possess the trading skills to make "millions" out of a few thousand, and you were just waiting for the Roth to show everyone what you can do. LOL! What you are being told is that this is a GRAY AREA.

For some reason GRAY AREA appears to be something that a few of you don't understand. What GRAY AREA means is that it was so ill-defined in the law that the tax experts aren't exactly sure how it will be interpreted when and if there are any test cases.

GRAY AREA typically also means that each test case is based on the SPECIFIC DETAILS of each situation. DETAILS become extremely important. I highly doubt that the tax experts are trying to create "fear and chaos" to keep anyone from trading in an IRA. The tax experts may just possess enough knowledge of various nuances that they are worried about how an audit would come down. This in the end is all they can tell you, along with what the consequences would be if you lost. It's up to you to make the decision.

Unlike the prior poster, I would be concerned about the consequences. Let's assume for instance that you do in fact make "millions", spread over a couple of decades. Try figuring out the taxes owed each year, with penalties EACH YEAR, compounding on you over a couple of decades. I would suggest that this could be something that would wipe you out.

I have no vested interest one way or the other. I am not qualified for a Roth IRA. So I don't have one. But I would suggest to all of you that you need to seek out some expert advice. If you can't afford a few hundred to get the advice, then you have to question what you're doing. You sure as hell aren't going to get it on a message board.

Finally, if you think that brokerage firms know all the answers here, think again. Brokerage firms have offered all kinds of tax advantaged investments in the past, some of which ended up being disastrous for their clients. If you're one who thinks they cuoldn't possibly offer something that wasn't right, take that hook out of your mouth. Not only could they, they have.

One final piece of advice. If you're truly good enough to take a few thousand, and build it into a few million, the taxes aren't going to make a damn bit of difference. Trust me on that one.

OldTrader

Posted by ElectricSavant on 03-04-06 06:33 PM:

Re: Re: Tax problem with daytrading futures in Roth IRA?

vhehn,

I know what you mean...but it is a big investment of time to find out the hard way!

Quote from vhehn:

i dont believe it and until i hear of some actual cases where the irs actually made a ruling i wouldnt worry about it. until then the roth ira is the ultimate trading vehicle.

Posted by takenoprisoners on 03-04-06 06:47 PM:

You want it in writing then:

this should help you- a link to Jones Day, law firm with 2200 lawyers in 30 countries. Here's the link:

http://www.jonesday.com/Home.aspx

Vhehn, did you ever hear the expression "pay me now or pay me later" in regard to changing your oil? Paying for oil changes or paying when the rod goes through the side of the block.

If you disregard what I'm telling you and you fall into this black hole, remember you're supposed to be paying estimated taxes quarterly on all that profit you didn't pay taxes on which will eventually be disallowed.

The Roth is NOT for day traders. I'm afraid you'll learn the hard way and man is it rough!

Posted by sprstpd on 03-04-06 06:49 PM:

Quote from takenoprisoners:

The Roth is NOT for day traders. I'm afraid you'll learn the hard way and man is it rough!

What is the definition of "day trading"? If I hold positions overnight but then get out within in a day, would the IRS consider that "day trading" in terms of the Roth IRA? Seems bogus to me. Where do you draw the line?

Posted by sprstpd on 03-04-06 06:50 PM:

Quote from takenoprisoners:

You want it in writing then:

this should help you- a link to Jones Day, law firm with 2200 lawyers in 30 countries. Here's the link:

http://www.jonesday.com/Home.aspx

How does this link help?

Posted by ElectricSavant on 03-04-06 06:51 PM:

It seems to me if you make a lot of money...like if you are in the over 100k in a year area...you may get on the audit list...but don't most daytraders lose money?

Quote from sprstpd:

What is the definition of "day trading"? If I hold positions overnight but then get out within in a day, would the IRS consider that "day trading" in terms of the Roth IRA? Seems bogus to me. Where do you draw the line?

Posted by Free Thinker on 03-04-06 07:14 PM:

Quote from takenoprisoners:

You want it in writing then:

this should help you- a link to Jones Day, law firm with 2200 lawyers in 30 countries. Here's the link:

http://www.jonesday.com/Home.aspx

Vhehn, did you ever hear the expression "pay me now or pay me later" in regard to changing your oil? Paying for oil changes or paying when the rod goes through the side of the block.

If you disregard what I'm telling you and you fall into this black hole, remember you're supposed to be paying estimated taxes quarterly on all that profit you didn't pay taxes on which will eventually be disallowed.

The Roth is NOT for day traders. I'm afraid you'll learn the hard way and man is it rough!

i am not interested in speculation found on the internet. until i see a case where an ira has been disallowed for excessive trading i dont think its true.
i didnt see anything related on that link you posted.

__________________
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Posted by takenoprisoners on 03-04-06 07:30 PM:

Quote from vhehn:

i am not interested in speculation found on the internet. until i see a case where an ira has been disallowed for excessive trading i dont think its true.
i didnt see anything related on that link you posted.

That link was for you to hire a knowledgeable attorney and get the letter of intention if you so desire.

I'm not suggesting you get any valid info off the internet either. If we're talking chump change why continue this? If a lot of money and possibly a lot of tax liability is involved hire a good 80 lawyer or in this case 2200 lawyer law firm.

I unnecessarily worked 5 years because I thought it would pay off in spades down the road only to learn I was deluding myself. Thank goodness most of my profits were in infrequent long term positions and my index trading was mostly "outside" the Roth in previously existing accounts.

So it's simple, if you are a big swinging dick, trading every day in a Roth and making big bucks... take heed. End of discussion.

In my case I added additional contracts to bring me back to my "net" position and when I think about it these days I reach for the bottle. Just kidding.

Posted by takenoprisoners on 03-04-06 07:41 PM:

Quote from sprstpd:

What is the definition of "day trading"? If I hold positions overnight but then get out within in a day, would the IRS consider that "day trading" in terms of the Roth IRA? Seems bogus to me. Where do you draw the line?

YES and YES and anywhere they want to. The rules are deliberately vague.

If what I think you're telling me is so, you too better look into it as well. The Roth IS bogus. It is an illusion if you "make it" in trading. Few do, so no one considers the alternatives.

If your trades were years long like my gold and crude oil and other stuff it is NO problem. You might get audited but you haven't done anything but what you're supposed to do- invest for your retirement. BUT... if you think you can avoid paying taxes and run a business tax free by doing it in a Roth- think again.

Sorry, no one is more unhappy than I. I had big plans and the guns to pull it off as well. I was searching the world over where I might live in a tax free haven if I chose to leave the USA. in the future. Now it doesn't matter.

Posted by Free Thinker on 03-04-06 07:44 PM:

Quote from takenoprisoners:

when I think about it these days I reach for the bottle. Just kidding.

this part i believe. lol

__________________
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Posted by traderstatus on 03-04-06 08:00 PM:

Quote from takenoprisoners:You might get audited but you haven't done anything but what you're supposed to do- invest for your retirement. BUT... if you think you can avoid paying taxes and run a business tax free by doing it in a Roth- think again.

I wonder how long ago was the examination? As disclosed in an exclusive interview in Ed Slott's IRA Advisor newsletter a couple months ago http://www.irahelp.com/ the IRS is preparing to come down hard on non-compliant plans. IMO, the only thing holding it back right now is negotiations as to if the onslaught will be an inquisition at the hellfire and brimstone level, or if the advising CPA's and other outside parties are sucessful in getting it toned down to the hell hath no fury level

Posted by Mark2m on 03-04-06 09:12 PM:

Day Trading IRA's/Roth & Trader Status

In scanning all 11 pages of this thread, I wanted to at least indicate the following, based on Trader Status. First, I have identified trader status with specific accts, not my IRA's/Roth accts. Secondly, I do trade under "trader status"futures, although the tax incentives are better under another umbrella, the future trading offers me a greater leverage for my limited resources and much better potential to make $$$ for my particular trading style.

In reference to the day trading and the questionable "frequent day trading" allowable by the IRS, surmised by other individuals in this thread, I know the following is applicable.
IRA Roth transactions
1. The holding period has no meaning - there is no distinction between long or short term capital gains

2. the sources of income or gain are treated the same - dividends, interest, capital apprectiation - again no distinction within an IRA/Roth

3. Internal transactions are not report to the IRS, there are just not any tax issues on buy or sell transactions within an IRA/Roth.

4. The IRS has no interest in record keeping, the only record keeping should be for yourself, marking your progress, etc..

5. There is no TAX Losses, the losses aren't a workable solution to your winnings.

6. Frequency of trades - the IRS does not care.... the IRS does care if you have "trader status", but in reference to Roth IRA, and trading Options, Forex, Futures, or Equities, there is no mention anywhere.

I trade with IB options, futures and equities, and due to the low commissions rate, the need to swing trade and scalp, I have no choice but to be a daytrader. As a matter fact, IB has thrown out T+3 for IRA's. (need for cash accts with Trade Day plus 3 day's prior to settlement and available cash to trade) Sort of a pseudo margin acct.

What I have found in the last 4 years is the lack of knowledge by CPA's, accountants, about trader status, usually 3 people and five opinions. Granted it is a gray area, unfortunately most of these people will wing it, call themselves advisors, and provide erroneous information to enhance their stature.

Suggestions, check with Mann Financial, traderstatus.com, tradersaccounting, fairmark.com,daytradingcoach.com/daytrading-free-educationtaxfiling.htm. Do your own research, take whatever you learn from this thread as questionable and certainly not the gospel.

Posted by ElectricSavant on 03-04-06 09:36 PM:

what I have got is this...if you declare over 100k in income... and you trade in your ROTH or TRADITIONAL...and make money....then u got some splainin' to do, cause' you a candidate fro an Audit...I do not really think they will bother you if you do not have two of these three things..

100k
many trades
profitable in ROTH or Traditional...

If you have many trades and no profit no worries..

this is not just Futures...but ANYTHING
You know this is true because you heard it on ET

Posted by CoolTrader on 03-04-06 10:10 PM:

Day trading IRA is a wide spread practice in the industry. If it is illegal, all of them should be banned. IRS cannot just pick on the big traders, and let go the smaller ones. You can challenge IRS in court if you become their target.
But based on takenoprisoners' posts in the other thread, he was screwed by IRS and closed his Roth.
http://www.elitetrader.com/vb/showt...=6&pagenumber=4
I don't know why he didn't file a lawsuit, the amount is too small to justify? That makes me worried, the worst nightmare really happened.

Posted by Free Thinker on 03-04-06 10:16 PM:

Quote from CoolTrader:

Day trading IRA is a wide spread practice in the industry. If it is illegal, all of them should be banned. IRS cannot just pick on the big traders, and let go the smaller ones. You can challenge IRS in court if you become their target.
But based on takenoprisoners' posts in the other thread, he was screwed by IRS and closed his Roth.
http://www.elitetrader.com/vb/showt...=6&pagenumber=4
I don't know why he didn't file a lawsuit, the amount is too small to justify? That makes me worried, the worst nightmare really happened.

i dont think he got audited. it sounds like he got an opinion that it could be illegal and it scared him.

__________________
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Posted by traderstatus on 03-04-06 11:00 PM:

Quote from CoolTrader:Day trading IRA is a wide spread practice in the industry. If it is illegal, all of them should be banned. IRS cannot just pick on the big traders, and let go the smaller ones. You can challenge IRS in court if you become their target.

IRS (and the Congress) certainly can pick on big taxpayers and not the small ones. It's done every day.

It is not "illegal" to buy and sell in an IRA, so there is no reason to ban it.

What might be construded as "illegal" is not paying your taxes and not filing the apporpriate tax return for the IRA.

The applicable tax form is found here: http://www.irs.gov/pub/irs-pdf/f990t.pdf

Posted by ElectricSavant on 03-05-06 02:26 AM:

takenoprisoners,

Did you get audited?

Michael B.

Posted by takenoprisoners on 03-05-06 07:19 AM:

Michael:

I apologize for leaving you hanging. I thought when I left the matter was resolved to the extent people would just continue to delude themselves into thinking everything is okay.

First off, NO I was NOT audited and NO I was not scared off either.

Here's what happened to me:

My Roth IRA account was set up in 1999 or 2000. The plan was to build the balance up to a substantial amount so I could trade the S&P 500 index in the Roth IRA tax free. Everybody knows there's no taxes from trading profits in the Roth. Right? So I took several futures positions long term and did indeed achieve my goal of amassing enough in the Roth to start to trade by this time the ES instead of Big S&P. Meanwhile I'm trading the hell out of the eminis in 3 separate brokerage accounts and paying the taxes quarterly. Now it's time to start using the excess cash in the Roth for the eminis.

In the meantime, my CPA says you can't get away with making this much money and not doing some tricky stuff. He suggested things like setting up an LLC or having someone else trade FOR me, etc. But the bottom line was it was too much money(trading profits in the 3 regular accounts) to do the same in the Roth.

He told me I could get a private letter ruling that would apply ONLY to me and no one else. For that you need a first class law firm with connections in D.C. to have any chance of success.

I researched everything I could get my hands on. The more I searched and talked to people the worse it seemed because Congress never meant the IRA to be used as a trading vehicle. Sure I've read a lot of rulings but the bottom line is I had to hire a law firm who did extensive research themselves and they told me to forget it. When they got done telling me exactly what I was up against I was only too glad to pay up and abandon the whole deal. I was told I would be accused of not paying my quarterly taxes- this is a criminal matter. Further I was told I would be looking at a 20% penalty for failing to do something (I'd have to get the papers from the safe deposit box) in addition to interest due for years if I went undetected. Bottom line it is not worth taking the chance if you have a great deal to lose.

Then and only then did I abandon the idea of trading ES in the Roth. Now I add contracts to "cover" the difference. Instead of trading 50 lot I trade 65 and it nets out to the 50. The outcome is the same and I am not doing anything that will come back and bite me in the ass. Many days I trade several hundred ES contracts so what's another 50 or so?

As far as having an agenda- no way. In fact I'm sorry I ever got started on this subject because I am a very private person and don't like to share my financial business with people I don't know.

That's why I seldom offer advice anymore. I don't like to argue or have a pissing contest.

I'll reiterate, if you make small gains you'll probably go unnoticed and "get away with it." But if you make money take heed because now more than ever before they are indeed watching you. The news article I read in the last few days claimed the IRS would aggressively audit $100k earners to close tax gap and Bush gave them double their previous budget to get it done. Just how many $100k earners do you think there are anyway?

Posted by ElectricSavant on 03-05-06 07:23 AM:

takenoprisoners,

Thank you for the explanation and being sensitive to my concern. I really do not know what to think now.

I had some plans for my retirement and need to re-evaluate before making any decisions. I wish there was a way to verify the stance of the IRS concerning this. Surely your not the only person that has faced this and I can imagine that others have now been audited and did not pre-emptively act as you did.

Fire your CPA...but maybe he was your best friend...I really do not know what to think...

I do not like the idea of the POSSIBILITY of any repercussions that an Audit can bring....

Michael B.

Posted by takenoprisoners on 03-05-06 07:29 AM:

Quote from CoolTrader:

Day trading IRA is a wide spread practice in the industry. If it is illegal, all of them should be banned. IRS cannot just pick on the big traders, and let go the smaller ones. You can challenge IRS in court if you become their target.
But based on takenoprisoners' posts in the other thread, he was screwed by IRS and closed his Roth.
http://www.elitetrader.com/vb/showt...=6&pagenumber=4
I don't know why he didn't file a lawsuit, the amount is too small to justify? That makes me worried, the worst nightmare really happened.

NO, I made a lot of money in the ROTH betting long on Crude Oil, Gold and others. Long term trades looking at monthly charts. These were trades that lasted for a long time. I just traded enough to be in the correct contract months for my system. That's okay. That's what you're supposed to do. It's called investing. Why should that be illegal?

I closed my Roth because I can make more in a week in the ES with less risk by not holding positions over night.

Posted by takenoprisoners on 03-05-06 07:41 AM:

Quote from ElectricSavant:

takenoprisoners,

Thank you for the explanation and being sensitive to my concern. I really do not know what to think now.

I had some plans for my retirement and need to re-evaluate before making any decisions. I wish there was a way to verify the stance of the IRS concerning this. Surely your not the only person that has faced this and I can imagine that others have now been audited and did not pre-emptively act as you did.

Fire your CPA...but maybe he was your best friend...I really do not know what to think...

I do not like the idea of the POSSIBILITY of any repercussions that an Audit can bring....

Michael B.

Michael:

If there is enough money involved get superb legal council. I recommended the law firm Jones Day because my neighbor works for them. They have offices in 30 countries and 2200 lawyers in the firm. There are plenty of great law firms like them. I'm sure you can locate one in your area.

If they find favorably for you they will give you in writing something the IRS may accept. Again, with the IRS everything is maybe. NO clear cut rules. If the IRS accepts this for you the IRS will tell me I can't depend on it and neither can Vhehn. So what kind of crap is that?

My CPA is my brother-in-law. I trade for him so he's not going to give me bad advice. He teaches accounting at a University.

Imagine trying to trade with uncertain probabilities like that?

Posted by GermanTrader on 09-11-08 10:39 PM:

I will try to link my related question into this thread's intent:

If I own XYZ trading, a sole proprietorship in the business of trading futures full-time in a normal futures account, and my wife, who files her 1040 separately, and has her own futures trading account/platform/data source/computer, happens to look over my shoulder and trade her Roth IRA mirroring my trades, what might the IRS look unfavorably upon? I do NOT claim 'trader status.' My wife has no business profit to pursue, she is merely building her Roth for retirement. She never withdraws, her income never exceeds 100k per year (so she maintains Roth eligibility) and her accounts are totally separate from mine.

What red flags, or grey areas, are there in this case?

__________________
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Posted by Free Thinker on 09-12-08 12:11 AM:

Quote from GermanTrader:

I will try to link my related question into this thread's intent:

If I own XYZ trading, a sole proprietorship in the business of trading futures full-time in a normal futures account, and my wife, who files her 1040 separately, and has her own futures trading account/platform/data source/computer, happens to look over my shoulder and trade her Roth IRA mirroring my trades, what might the IRS look unfavorably upon? I do NOT claim 'trader status.' My wife has no business profit to pursue, she is merely building her Roth for retirement. She never withdraws, her income never exceeds 100k per year (so she maintains Roth eligibility) and her accounts are totally separate from mine.

What red flags, or grey areas, are there in this case?

i dont see a problem. the fears that the irs would have a problem with trading an ira were unfounded. since this thread started i have never herard of anyone getting into trouble trading an ira.

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Posted by nursebee on 07-06-10 05:44 PM:

I would love an update on this topic from anyone with experience.

I have many years worth of Roth contributions to work with and am considering opening a custodial account for futures trading. I only know of one broker (I think it is velocity) that works with this arrangement and would like to learn of others.

Everything I have done with my Roth so far has been with the intent of growing the amount of money in the account. I would look to continue to do the same. I have income I live off of from other sources, will not be using this for daily living expenses ie income and find much of the discussion in that regard as irrelevant.

Thank you

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Posted by pismo10 on 03-13-11 08:52 PM:

Any updates?

Any suggestions where to open a Roth to trade futures?

Posted by kcgoogler on 12-13-11 03:50 PM:

Quote from pismo10:

Any updates?

Any suggestions where to open a Roth to trade futures?

I am looking to move my ROTH accounts to velocity as well. Are there other options available?

Thanks!

Posted by wouter on 03-13-12 12:29 AM:

This makes no sense

Trading futures, options, forex or stocks in your roth IRA is all the same. You could hold any of these trading vehicles intra-day or for years. You have to rollover the options and the futures, ok. So Berkshire Hathaway who invests for the long term is according to this thread not a business? How can the IRS say anything about trading frequency making trading in an IRA a business? Business have all kinds of time frames. That is not the definition of a business.

The IRS has made a disctinction between investing and business in the sense that it takes full time effort to be qualified as a trader in business. But even then they have disallowed some who even had their own research staffs and worked at it all day.

Just by definition an IRA is a retirement plan, not a business. So if you can trade in your retirement plan and make money for your retirement that is what it is set up for. If you do it by trading five times a day in a stock or an option or a futures contract, or if you use the same trading vehicles, to trade once a week, or just once a month or every six months it is not the timeframe that makes you a business or not a business. Businesses or investment companies such as Buffet's buy and sell long term and sometimes short term.

It is not the timeframe that makes them a business or an investor, it is the legally organized structure that defines the purpose of the entity. An entiity organized as an LLC or C corp is a business subject to quarterly tax payemtns. A Roth IRA is a legally formed "entity" under a plan that is not subject to quarterly tax payments. The time frame cannot / should not change that. Of course the IRS in it's haste to close the budget deficits so carelessly created by our elected "leaders" (whether rep or dem does not matter) will of course invoke anything they can think of to mess with a pot of gold ripe for the picking. That unfortunately is the reality. But then again, if you made 10 million in your IRA go and pick a good fight with them boys. Good thing I am one of the 90% who have lost in trading.

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