Hi group, an interesting tax question came up at a trading group session the other day: What tax liability am I triggering if I am long, let's say 10 calls, of XYZ, in my traditional IRA and short 10 call spreads of XYZ ( the short legs are a mirror to the long in the traditional IRA and spreads was created using very OTM long calls -- just because I can't have naked calls in an IRA). Now, let's say my longs expire worthless in the traditional IRA but the short premium collected from the spreads in the Roth is all mine. Have I triggered any tax consequences? What if I use options on futures instead of stock? (And yes, I can do all this in my IRAs.)
Your IRA is there for you to have a safety net when you retire. Why are you taking unnecessary risks betting your retirement funds?
These threads pop up periodically. People want to transfer funds from a cash account into an IRA by intentionally losing money in the former and having a big win in the latter. You could theoretically move more money than you're allowed into an IRA that way. It's like doing an unlimited contribution. In OP's case he wants to transfer funds from a traditional IRA into a Roth without recharacterizing and taking a tax hit. It's quite possible you'll get caught, though. Outfits like FINRA analyze financial transactions looking for fraudulent activity.
Any profits created in the ROTH should be tax free...unless options are different. That's probably your question, but I don't know anyone who does this in a Roth. I Googled the same question and had a hard time getting an answer. Sorry.
They could probably get you under market manipulation rules since you're making a trade that has no potential economic benefit (there's a technical phrase for that I don't remember at the moment), even though you're not actually trying to manipulate the market. Kind of like getting the gang bosses on money laundering or tax evasion even though the actual crime was something else. If you put yourself at real risk that it may not go to your benefit you're probably fine, but if you're literally crossing the order between your two accounts there's a pretty high chance it won't end well for you, not worth it when there are so many easier and less risky ways to make that same amount of money IMHO.
I guess I am just plain stupid. If we assume you had no trading costs and you made offsetting trades in your Roth and Traditional IRAs. One IRA would lose what the other gained. This would be the equivalent of moving money from the losing IRA to the gaining IRA and there would be no change in net worth. But how do you know ahead of time which trade will be the money maker? Therefore, how do you know which IRA will gain and which will lose? If you did know which trade would gain? Why would you you bother with a losing trade??? (The older I get the dumber I get, apparently.)
It's possible but probably not advisable to advertise how step by step. The way I'm thinking of would definitely leave you open to detection and make it clear what you were doing if any regulator wanted to check.