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Old Sep 26th, 2005, 12:02 PM   #37
jason_l
 
 
Join Date: Apr 2005
Location: New Albany, OH
Posts: 73
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..
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Old Sep 26th, 2005, 01:01 PM   #38
CoolTrader
 
 
Join Date: Mar 2002
Posts: 449
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? ...
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Old Sep 26th, 2005, 01:04 PM   #39
trdr25
 
 
Join Date: Jul 2004
Posts: 26
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.
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Old Sep 26th, 2005, 01:13 PM   #40
CoolTrader
 
 
Join Date: Mar 2002
Posts: 449
Quote:
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.
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Old Sep 26th, 2005, 01:15 PM   #41
traderstatus
 
 
Join Date: Feb 2004
Location: Connecticut
Posts: 277
Quote:
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.
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Old Sep 26th, 2005, 01:36 PM   #42
traderstatus
 
 
Join Date: Feb 2004
Location: Connecticut
Posts: 277
Quote:
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.
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