IRA Account without waiting for T+3. IB has one. Is it legit?

Discussion in 'Retail Brokers' started by jackpearson, Oct 26, 2010.

  1. IB has an account called a margin ira account where you can daytrade (but not short) within a roth or traditional ira account.

    Basically it removes the T+3 restriction found on every other broker's IRA account for reusing funds.

    Is this type of account legit with the IRS?

    It seems that if that type of account was legit, every single broker would have a similar type of account to generate more commissions for themselves.

    Does anyone have any thoughts about IB's supposed "margin ira"?

    PS: I've called other brokers and they all say it doesn't sound legit. That IRA accounts MUST be cash accounts with the normal T+3 restriction.
  2. JackR


    This has been discussed in the past. IB is a rather conservative firm and doesn't push the limits. IB is not loaning you money. IRAs/Roths cannot borrow.

    You can never leverage stocks in an IRA account as that would require a loan. All IB is doing is, in effect, an instant settlement, so that the proceeds from the sale are available immediately. IB self-clears, most brokers do not.

    Just to add some confusion, you can also trade futures in an IRA account at IB. In futures there is no margin, there is a performance bond. IB typically uses 1/2 the overnight "margin" requirement as the initial performance bond and their instant margin call/liquidation software ensures you always have enough cash to satisfy the performance bond or you get liquidated.

  3. how can IB do that considering the counterparty on your trades use T+3?
  4. JackR


    They do it for margin accounts all the time.

    I guess they are willing to accept the risk of non-settlement, if there really is any. In return for such "riskiness" they allow you to trade more often, and commissions are their business, not sitting on your money.

  5. JamesL


  6. Are there any other brokers besides IB that do the same thing?
  7. JackR


    I'm not sure but if I recall earlier threads Scottrade and TOS were mentioned.

  8. Scottrade said you can't do it.

    Every broker says it's against Regulations to allow it. Why would they say that if it wasn't true? It's to their advantage to allow it as it would generate more profit for them.
  9. uptickk


    TOS allows futures trading in an IRA if you get approval. I have the approval but havent traded it in my IRA but I do trade options in it. They just have to have a defined risk.
  10. GTS


    Let's be clear here - performance bond or not, it would be quite easy for a highly leveraged IB IRA to go negative with futures - the market just has to gap widely against your futures position and you would be negative before they could liquidate you.

    Presumably IB would require you to bring the account to zero but IRA rules might prevent you from doing that lest you create a situation where you have over-funded your IRA...not sure what happens in that case....I wonder if IB would let you square the account by making a cash transfer from a non-IRA account.

    Disclaimer: I do have a IB SEP-IRA account that I trade futures in but I keep plenty of extra cash/equities in it.
    #10     Oct 28, 2010