Top 15 Questions about Trading in an IRA

Based on searches that lead people to Six Figure Investing, these are the top investment questions people ask about IRAs.  For definitive answers to tax questions in your specific circumstances please consult a tax professional. General Why trade in an IRA?   Because it allows you to defer or avoid taxes on dividends and capital gains—all of your profits can be reinvested tax-free. What trading restrictions/rules …

Read more

Trading Restrictions in an IRA

IRAs are attractive to investors because they enable taxes on dividends and profits to be deferred (traditional IRA)  or avoided (Roth).   To a large degree, you can do the same trades in an IRA that you can do in your regular accounts.  However there are significant differences, and the differences change over time as brokers adjust their policies and their software.   I’ve tried …

Read more

Twists and turns in converting a traditional IRA to a Roth

The change of the tax laws to allow everyone to convert their traditional IRAs into ROTH IRAs in 2010 was a nice present to the tax advisor community.  The issues with this one were nearly enough to make even me, a die hard do-it-yourselfer, seek professional advice.   Instead of paying for advice, I called the IRS.  The woman I talked to in the IRA department was …

Read more

Trading in IRA accounts, and avoiding “free riding”

As much as possible I try to trade in my IRA accounts—in order to defer taxes of course. It is a bit counter-intuitive to be doing more speculative activities in a retirement account, but this approach supports my goals:

  • Achieving good returns
  • With reasonable risks
  • While compounding growth

If your money is in Roth accounts, all the better, but most people interested in trading in their IRAs are restricted to traditional IRAs.

There are restrictions on what trades you can do in an IRA account.  For example, you can’t short a stock in an IRA account, but option restrictions have eased some over the years,  and market innovations like short ETFs (e.g., SH, SDS) have effectively bypassed some of the more onerous restrictions.   Brokers vary considerably in what they allow in IRA accounts, so pays to ask around.   Fidelity & Schwab allow many types of option spreads that some brokers might not. Covered calls and protective puts on long positions are broadly available within IRAs. Interactive Brokers and TD Ameritrade both waive the 2-day settlement requirement on trades in IRAs so if you plan to do frequent trades they would definitely be worth a look.

For a more general treatment on trading in IRAs see “Top 15 Questions About Trading in IRAs.”  The rest of this post will deal with free riding and how to avoid it.

Read more