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CoolTrader
Registered: Mar 2002
Posts: 449 |
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?
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danoXP
Registered: Jul 2004
Posts: 202 |
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).
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PatternMaster
Registered: Aug 2003
Posts: 15 |
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? 
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sprstpd
Registered: Apr 2003
Posts: 2508 |
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.
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OrderBlaster
Registered: Feb 2004
Posts: 53 |
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.
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jason_l
Registered: Apr 2005
Posts: 73 |
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.
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