Are trades in an IRA reported? (EVER?)

Discussion in 'Professional Trading' started by Toonces, Aug 16, 2006.

  1. IRAs are treated exclusively as personal income sources. The income is taxed only when distributions are taken, and the IRS does not care how the money got into the account. They only care how much you take out of it.

    As fas as my understanding goes, there is no such thing as a marginable equities IRA account. There are brokers that allow trading of leveraged instruments through an IRA account, however. In this case, taking either long or short positions requires borrowing against the full contract or cash value, so margining the account is necessary.

    #11     Aug 16, 2006
  2. Key to tapping into these opportunities is to locate an independent self-directed IRA custodian. Unlike many brokerage firms that claim to offer this service, a true self-directed IRA custodian does not sell investment products on which it earns a commission. These offer the widest range of IRA investment options.

    Guest article courtesy of:
    Traders Accounting" [/B][/QUOTE]

    Interesting article....can you recommend any independent self-directed IRA custodians?....I am interested in transferring my existing IRA into an LLC
    #12     Aug 16, 2006
  3. #13     Aug 16, 2006
  4. GTS


    I have a SEP-IRA with IB. When signing up I had two choices, margin or cash trading permissions.

    Under the margin option it says this:

    Under the cash option it says this:

    The account does not have more buying power then I have cash (e.g. no borrowing)
    #14     Aug 16, 2006
  5. As you've posted it is not considered "illegal" by the SEC, nor by the DOL nor by the IRS. But it is independently "outlawed" (mostly due to confusion) at many retail brokerages houses.

    One big reason for this is that SEC staff opinions erroneously informed brokerage houses that it was illegal, per the IRS. The SEC punctuated this by prosecuting Ameritrade/Datek in 2002 with a fine in the amount of millions of dollars allegedly for this offense.

    It was typical bureaucratic confusion. The facts are that the Ameritrade fine was for allowing free-riding in cash accounts (not necessarily IRA accounts).

    The SEC had allowed their non-tax-experts to go off and publish "staff opinions" that said the IRS outlawed margin borrowing. (but they had misread the gobbledy-gook words in the IRS regs)

    Yours truly spent about 12 months or so "battling" on a professional level with the SEC until they agreed to retract all "staff opinions" that said the IRS outlawed margin accounts. I then also continued the "battle" to get the SEC to publish a firm retraction and correction of their prior error (and not just quietly withdraw the staff opinions).

    But understandably to "save face," they would not do so until the IRS affirmatively told them that the documentation package I had put together for them got an official IRS blessing.

    Unfortunately the IRS has many other projects on their plate and they have kept putting off this low-priority SEC request.
    #15     Aug 16, 2006

    #16     Aug 16, 2006
  7. There is NO margin availability toward an IRA account. Concerning equities, call up a full commission broker and see IF they'll accomodate you. You already know the discounts won't.

    Per Reg T, it's CASH. Consequently, you have no benefit (or detriment) of leverage and trades must SETTLE. In effect, you can only trade 1/3 of your account each day, and not to the frequency your fantacizing about if you want activiity each day. Of the one third of the dollars available, each dollar has just one "opportunity"

    Obviously, any losses in an IRA have no tax loss benefit (which can be construed as an asset to offset future gains). In effect, increases risk.

    You can write covered calls and buy-writes. Which is merely hedging.

    All transactions are indeed reported to the IRS. They just don't entail a present tax liablity. You'll get a 1099 each year.

    Tax liabliity isn't avoided. It's merely deferred until you're 59 1/2 (or older). in theory being in a lower tax bracket then. IF you succeed at your trading activities, then a lower bracket is a myth.

    The price for deferral is in effect not having full use of your funds until you're flirting with 60ish. You can compound it (without leverage) but you can't spend it.

    IF you get the bright idea of a pre-mature distribution, you're in for a couple of surprises. One is a 10% penalty, the other is the tax liability as ordinary income toward the amount withdrawn. 10% of principal (and no tax loss beneift) is a pretty good "fine" for withdrawing what's already YOURS.

    You can however withdraw funds once each year for whatever application you desire provided the same amount is returned WITHIN 60 days.

    The $25,000 threshold mentioned pertains to Reg T for pattern day traders, has NOTHING to do with IRA's.

    As any mechanic or carpenter will tell you, "the right tool for the right job".
    #17     Aug 16, 2006
  8. I see you contradict what I've posted, in spite of my being the one who corrected the SEC themselves resulting in them pulling the staff opinions that said similar to what you claim.

    Okay, I'll go along with you for the discussion. Here's Reg T. please show us the specific clause that restricts IRAs to cash accounts.
    #18     Aug 16, 2006
  9. No intended contradiction. You missed my second sentence. From a practicality standpoint, you won't find anyone that will accomodate. Call up Merrill. Call up Hambrecht. Gruntal, Cowan, etc. Call up a boutique. Suggest you generate near 6 figures in commissions PER ANNUM. See IF they'll allow an .........IRA full-fledged trading vehicle toward EQUITIES. I.E. Leverage. (make it easy, 2 to 1 not 4 to 1) Latitude to short. Buying puts. No need to even bring up writing naked options. Remind them in ADDITION to tenative consistent commissions, they'll benefit from margin interest (despite being a day trader you generally hold overnight to benefit from gap opens). Tell 'em you realize your SMA (which pertains to margin not cash) "starts over" from scratch. Charm 'em. Tell 'em you hope to be spooned an IPO now and then. See what they say.


    After YOU call any (entirely your choice) and "find out", let me know. Let us know.

    Fed Reserve Reg T = Left Hand SEC = Right hand. Bureaucracy.

    You also apparently missed my described drawbacks. The beauty of tax deferral comes at an imposing " price". NO tax loss beneift. No full use of funds until "retirement" and.................there's a distinction between deferral and avoidance.

    Other than your demise, the only "sure thing" is taxes. The only way to avoid them is to lose the underlying principal or die leaving an unspent estate (and the liability to descendents).

    IRA is a product. Incepted in 1981 (Roth 97 or 98) . For the masses. Yes, I suppose one could trade with it. I could probably drive nails with a rubber mallet or a pair of pliers, but would prefer a hammer.
    #19     Aug 16, 2006
  10. Okay, it's just symantics... the words we used!

    Suffice it to say, the Fed does not prohibit margin for IRAs, the SEC does not, Reg. T does not and the IRS does not.

    Many retail brokers DO prohibit margin for IRAs

    As I explained earlier one reason that many retail brokers prohibit margin for IRAs was that the SEC used to erroneously tell brokerage houses that it was illegal per the IRS. They only pulled this long-standing "staff opinion" recently so it will be a long time coming until old dogs will learn new tricks.

    As someone posted, retail brokerage IB has learned, but I've talked to others and the old school will not listen. As in: "Don't confuse us with the facts, Sir, we already know the answer."
    #20     Aug 16, 2006