Trading futures in retirement account - potential huge problem?

Discussion in 'Trading' started by tschotland, Jul 27, 2008.

  1. Hello,

    Is anyone here trading futures in a retirement account (IRA or qualified plan) with MFGlobal or Peregrine Financial? Did you have to sign a personal guaranty on the account? I have been asked to do so. The problem is I have been told by numerous taxation and ERISA specialists that this is a prohibited transaction, specifically an extension of credit between a disqualified person and the plan. See IRC 4975(c)(1)(B).

    The consequences of this are extremely severe. An IRA ceases to exist as of the day the transaction was entered, with the entire account considered to be distributed and taxable as of that day. For a qualified plan you owe some sort of enormous tax on the transaction each year until it is reversed, whatever that would mean when you've been trading a futures account for years.

    MFGlobal tells me countless clients have signed this guaranty on their retirment funds. On the other hand, when I showed the guaranty agreement to an IRA custodian that has clients with accounts at MFGlobal, they said they had never seen it before and it was definitely a prohibited transaction. They said I was the first person to raise the issue among thousands of people trading futures in their IRAs.

    The MFGlobal guaranty includes language that makes the guarantor state they know that by signing the guaranty they are not breaking any laws - very nice for MFGlobal.

    It seems incredible to me that this issue, if real, has never been addressed before. Does anyone here know anything about it? It's like a landmine waiting to explode in the futures industry.
  2. Interactive brokers also allows futures (US currency) and futures option trading in the IRA. How I don't know least how the risk is managed or funded...however in their FAQ sheet on IRA's they clearly state that you CAN trade futures and futures options in an IRa. You might want to check them out.
  3. Hi gammagrabber,

    Unfortunately I have to open these accounts at either MFGlobal or Peregrine. I need to know if I am going to explode my retirement plans by doing so.

    I'm also hoping to warn people who might be in trouble because of signing such guarantys.

  4. Surdo


    Have you considered consulting a CPA or the IRS, you can not depend on an internet message board for legal/tax advice.

    I traded futures in my IRA for 5 years, and have never gotten any odd tax bills from Uncle Sam.

    el surdo
  5. Hi Surdo,

    As I said, I have talked to numerous tax and retirement (ERISA) professionals. They all tell me the same thing - if you sign that guarantee and the IRS finds out, your account is torpedoed as of the day you signed it. Personally I don't like betting on the probability of the IRS not catching me on something.

    I'm just trying to find out if anyone else has been asked to sign a guarantee like this, and if so, did they talk to *their* advisors first and what did they say?
  6. I'm surprised by the low response to this thread. Is it that nobody has been asked to sign a personal guaranty but me? Or are there just not many futures traders on this board. Perhaps I'd better cross-post to some of the futures boards?
  7. You need to learn more about how to structure IRAs.
  8. Most people probably think it's a bad idea to trade speculative futures in an account which is designed for your retirement.

    I know I do.
  9. I have had several IRA accounts at MF Global and Vision LP in which futures were traded for myself and my wife by Registered CTAs, which from my understanding is the only way it can be done. The outcome was not happy one though. Registered CTAs are just as capable of losing money as rank amatures.:mad:
  10. Can you explain what you mean?
    #10     Jul 28, 2008