BishopM05 

This is a very interesting concept that I am looking into as well. Huge tax savings potential. I'm wondering how many traders here use this method for tax reasons? Also, for those who use it, do you use an automated strategy in it as well? Thanks!

biggest issue with trading with a Roth is that, in my case at least, I have to use a backdoor to gain access to it. Basically the limits in terms of funding are too restrictive and I dont want to have to pay taxes based on all my IRA accounts values...

this year my plan is to move everything on the IRA to a soloK with the exception of the amounts I have reported on form 8606. If you can fund and trade on a Roth IRA, dont hesitate and do it, as long as you are profitable of course... you can open your account with IB and TOS, or use an alternative asset custodian like Millenium Trust or PENSCO to open the account with any FCM they support.

sysot1t 

biggest issue with trading with a Roth is that, in my case at least, I have to use a backdoor to gain access to it. Basically the limits in terms of funding are too restrictive and I dont want to have to pay taxes based on all my IRA accounts values... this year my plan is to move everything on the IRA to a soloK with the exception of the amounts I have reported on form 8606. If you can fund and trade on a Roth IRA, dont hesitate and do it, as long as you are profitable of course... you can open your account with IB and TOS, or use an alternative asset custodian like Millenium Trust or PENSCO to open the account with any FCM they support.

Not sure I understand what you mean about funding your Roth. That isn't what I'm referring to. Trading from a Roth isn't funding it. The Roth is already funded and I'm just using the money already in the Roth to trade with. That's what happens to the Roth funds whether in a CD or mutual fund or whatever. Whether or not I continue contributing to my Roth or now, the funds in the Roth continue to expand or contract as the earnings expand or contract. So, I'm curious what you really mean by funding...Want to make sure we're talking about the same thing.

DavidHP 

That is not bad except that professional traders usually pay higher fees. .

yes it is. you want to be an amatuer forever.

sysot1t 

If you can fund and trade on a Roth IRA, dont hesitate and do it, as long as you are profitable of course...

That last part is key! A Roth is no place to play around and lose money just because of the tax advantage, as there is no advantage to taking losses in a Roth, and a Roth is not as easy to fund (i.e. can not just replace funds like you would in a normal account). For most people a Roth is probably the definition of funds that you should not be trading with.

aslan 

That last part is key! A Roth is no place to play around and lose money just because of the tax advantage, as there is no advantage to taking losses in a Roth, and a Roth is not as easy to fund (i.e. can not just replace funds like you would in a normal account). For most people a Roth is probably the definition of funds that you should not be trading with.

I know a guy who did just what you warn against. He already had a track record of losing on every method he tried. Ran out of money and started trading in his IRA. Guess what? He was losing money there as well. By the way, in case you are wondering, that guy is not me...whew!!!

MWinfrey 

Not sure I understand what you mean about funding your Roth. That isn't what I'm referring to. Trading from a Roth isn't funding it. The Roth is already funded and I'm just using the money already in the Roth to trade with. That's what happens to the Roth funds whether in a CD or mutual fund or whatever. Whether or not I continue contributing to my Roth or now, the funds in the Roth continue to expand or contract as the earnings expand or contract. So, I'm curious what you really mean by funding...Want to make sure we're talking about the same thing.

my point is...

Roth's are great.. nothing like tax free revenues and income... as long as you can actually grow that account it just means you wont have to worry about the tax man at all when you retire.

Issue with Roth is that Not all people will qualify to be able to contribute (aka fund) the Roth Account directly..

Some people, like myself, will have to use a little tax loop that has to do with conversions.. which was expanded in 2010 in the hopes of the IRS to raise more revenue.

basically, any after tax contributions (as reported on form 8606 to the IRS) can be flipped into a Roth IRA from a traditional with $0.00 taxes as long as the remainder of your retirement funds are found within a qualified plan ( e.g. 401(k) or Solo 401(k)) ... doing so requires some careful planning of course.

if that is not the case, meaning that you dont have access to a qualified plan, you will then have to pay taxes during the conversion based on what percentage of the total IRA funds the amount you want to convert will be...

I was not referring at all about funding a trading account with Roth funds, but rather being able to fund the roth itself. I hope that clarifies it better..

and as usual, please consult your tax advisor.. I am not offering advise, merely alerting those reading as to the challenges that you will be facing..

MWinfrey 

I know a guy who did just what you warn against. He already had a track record of losing on every method he tried. Ran out of money and started trading in his IRA. Guess what? He was losing money there as well. By the way, in case you are wondering, that guy is not me...whew!!!

I agree with both of you, @aslan and @MWinfrey, if one is not already successful, then one should not trade on an IRA at all regardless of what kind.. there is no easy way to fund it once more if you blow the account.. and it is not like you can write off the losses, so not the best vehicle to learn to trade or get started trading...

but if one is consistenly profitable, then by all means.. trade with IRA away... IMO for the IRA one should have profit targets and losses clearly defined.. contrary to how one would trade on a regular account where I would say define loss, but no defined wins...

When I traded stocks I tried trading an IRA. The problem with IRA trading is that the money can only be used on one trade per day. This meant that the money used to make one GOOG trade of 1000 shares might leave little unused money in your account to trade with. Each trade leaves less untouched money to use, even when all your positions are closed. Hopefully I am remembering this correctly.

Dan

sysot1t 

my point is... Roth's are great.. nothing like tax free revenues and income... as long as you can actually grow that account it just means you wont have to worry about the tax man at all when you retire. Issue with Roth is that Not all people will qualify to be able to contribute (aka fund) the Roth Account directly.. Some people, like myself, will have to use a little tax loop that has to do with conversions.. which was expanded in 2010 in the hopes of the IRS to raise more revenue. basically, any after tax contributions (as reported on form 8606 to the IRS) can be flipped into a Roth IRA from a traditional with $0.00 taxes as long as the remainder of your retirement funds are found within a qualified plan ( e.g. 401(k) or Solo 401(k)) ... doing so requires some careful planning of course. if that is not the case, meaning that you dont have access to a qualified plan, you will then have to pay taxes during the conversion based on what percentage of the total IRA funds the amount you want to convert will be... I was not referring at all about funding a trading account with Roth funds, but rather being able to fund the roth itself. I hope that clarifies it better.. and as usual, please consult your tax advisor.. I am not offering advise, merely alerting those reading as to the challenges that you will be facing..

I absolutely hate the way I express myself sometimes. I think we are still talking about 2 different things. Let me be a bit more specific in an effort to reduce the confusion I've caused and let me put it into a context of my personal situation.

I have several Roth accounts that have existed for years. I intend to use one of those accounts for trading purposes. I will not continue monthly contributions to that Roth. So, aside from fees, the only changes to that account will be the profit or loss that I incur trading using that account. Therefore, any profit or loss in that Roth account is nontaxable assuming the IRS rules don't change.

Again to be clear I will only be doing this with a proven profitable trading method.

So, have I muddied the waters even more? I still have to clear all this with my tax professional but does my approach make sense or am I out to lunch?

This is a great discussion and one that I appreciate a lot.

eDanny 

When I traded stocks I tried trading an IRA. The problem with IRA trading is that the money can only be used on one trade per day. This meant that the money used to make one GOOG trade of 1000 shares might leave little unused money in your account to trade with. Each trade leaves less untouched money to use, even when all your positions are closed. Hopefully I am remembering this correctly. Dan

nope, the IRA trades (almost) just like a regular account ... PDT rules apply to IRA's, and the only thing you cant do with the IRA is short or have a negative margin balance... everything else you can do as long as your balance is over $25K.. but there is no 4:1 leverage during the day (goes back to the negative margin balance thing)...

so you can write puts as long as there is enough cash on the account to cover the underlaying... write covered calls only.. buy puts/calls and do spreads... and you can trade futures given the "margin" is really a pledge.. same goes for forex..