you could register a company. I'm not sure about tax laws in the US but: an investment company could be started up with the equity in your current account (i.e take it all out pay taxes etc) register new account under company name. All the revenue from trading operations would be used to buy company assets i.e t-bills, t-notes, shares anything that you can get your hands on that will increase the balance sheet of your company, and can be used as margin for your trading operations as well. This should have the effect of lowering your taxable income whilst still preserving your wealth. I'm pretty sure that for an investment company, purchases of land, t-bills adn shares would be regarded as capital expenditures. The bad thing is that unfortunately you wont own most fo your assets, except your company will of which you will be 100% shareholder
I think you're getting into the question, "If I really get to be a trader, what is the best way tax-wise to trade?" I think that's actually a step ahead. Of course, it's good to think about since I'm gonna be trading from some Carribean island somewhere.
First, you're fantasy is very similar to my personal experience. The major issue is experience. Steady as she goes and give yourself plenty of time in the markets. Don't do anything brash or stupid and just keep plugging away at it, gaining experience and time in the market all along. 1. Max out all your contributions to your ROTH first, keep track of all your contributions (you can withdrawal the contributions anytime penalty free as long as the account has been open for 5 years). You should refine your strategies all along and be scaling them up accordingly. KEEP IT SIMPLE! You are developing your bread and butter system. Cash flow is KING! 2. Max out your 401K to the maximum of the company match. Do the best you can within the limits of the plan, BUT GET EVERY PENNY OF THE FREE MONEY FROM THAT MATCH YOU CAN AND LET IT VEST! 3. You need to open up an unrestricted account with a good broker (like IB) and make it grow to at least 50K (bare minimum in my opinion). This is the most important step and will be the true test of you and your strategies. Keep learning all you can as far as options, futures, shorting, etc... 4. KNOW YOUR NUMBER AND HIT IT! Only you and you alone can determine what that number is. Fortunately for me it was much less than 500K due to the fact that I kept my expenses and debt reasonable. My trading style developed well over time and my strategies and comfort in using them have also expanded considerably. I have to remember to KISS as much as possible, but I have my BREAD AND BUTTER cash flow generating system underpinning my strategy. 5. After you hit your number, beef up your main trading account and start to reduce your exposure to REGULAR WORK. For me it was to quit my day job due to the fact that I can make more per hour trading than jumping through the employer's hoops (the employer has since gone bankrupt and all of my past "colleagues" got axed, corporate America ain't going to fund your retirement/future - YOU ARE so do it on your terms). It can be scary at first, but if you REALLY DO know what's going on it shouldn't be a problem. You will have plenty of cash to make it and still be comfortable with a roof over your head. You should not be pressed by having to make a number every year due to the fact you have already made it to support your lifestyle as you know it. You now simply have to concentrate on making your capital work harder for you. That's the big difference than most of the desperate types that litter this site. You will have had your plan in place well before you enter the markets, and will have chosen to enter on your terms - NOT OUT OF DESPERATION OR NECESSITY! All the questions: "I've got 25K, how much can I make with it?" "I've got 50K, how much do I need to live off?" "I've got 100K, how much can I realistically make per month with it?" Blah, blah, blah.... You know the types. The inevitable market losers that aren't in touch with reality but have all the DREAMS. Unfortunately they're mostly pipe dreams and the game is REALLY FUCKING HARD, TAKES LOADS OF TIME, PATIENCE AND TONS OF HARD WORK! Only you, yourself really knows if you can make it happen. Sounds to me you are getting close to the crossroads of a decision. Take your time and think it out. It ain't easy and doesn't have to happen tomorrow. There's nothing wrong with a regular/steady grind job that's offers the ILLUSION OF STABILITY. To me that could be the riskiest proposition of all in the end. If you do accept the challenge, check your ego at the door and become your own man making it in the markets; IT'S THE MOST LIBERATING AND REWARDING THING YOU WILL EVER DO AND YOU WILL WANT TO DO IT UNTIL THE DAY YOU TAKE YOUR LAST BREATH! "All the pleasure was worth all the pain." - The Weather is Here, Wish You Were Beautiful; Jimmy Buffet Good Luck.
Yes, you're right, there is a 10% penalty if you're under 59 1/2. Here's a helpful link http://www.rothira.com/topten.htm There are exceptions (from IRS website) Other early distributions. Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions. Exceptions. You may not have to pay the 10% additional tax in the following situations. You have reached age 59½. You are disabled. You are the beneficiary of a deceased IRA owner. You use the distribution to pay certain qualified first-time homebuyer amounts. The distributions are part of a series of substantially equal payments. You have significant unreimbursed medical expenses. You are paying medical insurance premiums after losing your job. The distributions are not more than your qualified higher education expenses. The distribution is due to an IRS levy of the qualified plan. The distribution is a qualified reservist distribution. Most of these exceptions are discussed earlier in chapter 1 under Early Distributions.
Things have been going pretty well as of late due mostly in part to the 4-year bull market. This could change on a dime, and a long-only system as the one you're employing may not hold up so well, even with selective screening and tight money management. How well did your stock picking do in '00-'02?
Worry about making money as a trader first. Once you've made your nut, you can worry about tax structuring.
Thx for the encouraging response. (I didn't respond because I figured I'd get an email when someone responded but apparently didn't.) I know I'm on my way. The reason I say that is that I don't lose any more. What I mean by that is that I actually don't have significant draw downs any more. I'm not getting the kind of money acceleration I'd like, but, still, it's nice progress. The real test is when the market goes south as I've never traded in an extremely negative (for long strategies) environment. And thx for the encouragement about early retirement! There's a site I like http://www.retireearlyhomepage.com/ that thinks similar to the way you do and I've always been a big fan... Anything else you have to offer is much appreciated...
Excellent point and one I've thought about as I just posted: I really haven't been tested in a bear. My strategies backtest very well in that time frame, but I realize that that only proves so much...
Thx for that link! That's exactly what I was looking for. Do you know what "the distributions are part of a series of substantially equal payments" means? To me that could mean a lot of things...
You always hear of the successful traders and hedge funds. Rarely do you ever hear about those who lost or those funds that closed down. The reason why you dont hear about them is simple. The ones who win rise to the top of the messageboards and the headlines. While the ones who lose are never to be heard from again. You have to consider that you might lose money in this enterprise. There are no guarantees in "trading". When the market is good, everyone wants to trade, but then when it turns bad then all these "traders" become unemployed. When they dont have a skill to fall back upon, then thats when they are truly truly scr*wed.