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I read somewhere that IF (and that's a big IF) you can outperform the general stock market with short term trading, then you should do so in a tax deferred account such as an IRA, KEOGH, or 401K account to avoid taxes on all gains (all capital gains, dividends).  A regular taxable account would be best for long term capital gains because of the lower taxable rate..  If you cannot outperform the general market with your trading strategies then you should NOT be using either account to trade using your strategies; instead you should invest in a general market ETF or mutual fund or pursue something else..

Anyone trading a lot in a tax deferred account?

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Day trading in an IRA is a great way to incur losses that are not deductible. Remember, you can still beat the market an... (more)

DavidScubadiver (Sep. 06, 2013 @ 2:32p) |

If you don't know what you are doing, day trading an IRA (Roth or traditional) is stupid, as you said. But if you know w... (more)

noelandres (Sep. 06, 2013 @ 2:49p) |

IF day trading makes sense, then a tax-free or tax-deferred account is the place to do it.  That's a pretty gigantic IF,... (more)

cestmoi123 (Sep. 06, 2013 @ 3:55p) |

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Yes (depends how you define a lot)   I have a retirement account with Interactive Brokers for active trading

Doing it in an IRA also saves you from having to report each transaction on the Schedule D.
However I don't trade, I'm more of a buy and hold kinda guy.

Some 401ks frown on active trading, since it increases the cost to the group.

High returns with low volatility in a Roth would be the Holy Grail.

TravelerMSY said:   High returns with low volatility in a Roth would be the Holy Grail.
  
Yep. And then, after growing your Roth IRA account to > 1MM, you would buy dividend paying stocks, and live off dividend tax free! 

noelandres said:   
TravelerMSY said:   High returns with low volatility in a Roth would be the Holy Grail.
  
Yep. And then, after growing your Roth IRA account to > 1MM, you would buy dividend paying stocks, and live off dividend tax free! 

 
How so? Wouldn't the distribution from the Roth still be taxable, sourced from dividends or otherwise?

Edit: Oops, ignore that. Massive brain fart. As I was typing "Roth" I was thinking "401k".

jcbrooks said:   
noelandres said:   
TravelerMSY said:   High returns with low volatility in a Roth would be the Holy Grail.
  
Yep. And then, after growing your Roth IRA account to > 1MM, you would buy dividend paying stocks, and live off dividend tax free! 

 
How so? Wouldn't the distribution from the Roth still be taxable, sourced from dividends or otherwise?

  It's clear you have not met the Roth IRA!
 

mrpresidentusa said:   
Anyone trading a lot in a tax deferred account?

  It depends on what you mean by a lot.  I trade "a lot" in my Roth by most standards, but very little presently compared to trading in my taxable account.  There are important differences in terms of lack of leverage, inability to sell short, and similar issues that make some of my trading less attractive in my IRAs. 

I've known people who ran their Roths up to 7+ figures on successful active trading.  Their problem is that they can't get any meaningful amount of the funds out for another 25 years without paying both taxes and an extra 10% penalty.  You have a hard time doing an early retirement with most of your assets in a Roth, and the 72(t) stuff doesn't let you upgrade to a mansion.

jcbrooks said:   
noelandres said:   
TravelerMSY said:   High returns with low volatility in a Roth would be the Holy Grail.
  
Yep. And then, after growing your Roth IRA account to > 1MM, you would buy dividend paying stocks, and live off dividend tax free! 

 
How so? Wouldn't the distribution from the Roth still be taxable, sourced from dividends or otherwise?

  
The dividends coming out of a Roth IRA aren't taxable. In fact, I don't believe there is anything that is taxable coming from a Roth IRA.

noelandres said:   
jcbrooks said:   
noelandres said:   
TravelerMSY said:   High returns with low volatility in a Roth would be the Holy Grail.
  
Yep. And then, after growing your Roth IRA account to > 1MM, you would buy dividend paying stocks, and live off dividend tax free! 

 
How so? Wouldn't the distribution from the Roth still be taxable, sourced from dividends or otherwise?

  
The dividends coming out of a Roth IRA aren't taxable. In fact, I don't believe there is anything that is taxable coming from a Roth IRA.

You are still taxed at your rate, plus a 10% penalty for early withdrawals before age 59.5.

There are a couple ways around this...
- Return of contributions and 5+ yr old conversions don't count as early withdrawals, so you still need to track how your contributions.
- Use rule 72(t) to take equal withdrawals every year until 59.5
- Become disabled.

ThomasPaine said:   
noelandres said:   
jcbrooks said:   
noelandres said:   
TravelerMSY said:   High returns with low volatility in a Roth would be the Holy Grail.
  
Yep. And then, after growing your Roth IRA account to > 1MM, you would buy dividend paying stocks, and live off dividend tax free! 

 
How so? Wouldn't the distribution from the Roth still be taxable, sourced from dividends or otherwise?

  
The dividends coming out of a Roth IRA aren't taxable. In fact, I don't believe there is anything that is taxable coming from a Roth IRA.

You are still taxed at your rate, plus a 10% penalty for early withdrawals before age 59.5.

There are a couple ways around this...
- Return of contributions and 5+ yr old conversions don't count as early withdrawals, so you still need to track how your contributions.
- Use rule 72(t) to take equal withdrawals every year until 59.5
- Become disabled.

  
You are wrong. Dividend coming from a ROTH IRA is not taxable. Also, capital gains coming from a ROTH IRA is not taxable. You do have to be older than 59.5 to begin withdrawing tax free. If you are younger, you can withdraw your CONTRIBUTIONS tax free at any moment. Every withdrawal over your CONTRIBUTION is subject to tax and the 10% penalty. People need to get informed.

If you have a big loss in a roth IRA, you may not be able to deduct the loss unless you close the entire roth IRA (if you are older than 59.5)

I do this all the time with multiple IRA accts.  I have $4.95 trades for life with my Merrilledge and E-Trade accts.  My Merrilledge acct also gives me 30 free trades/month and I usually make 30-60 trades/mo in that acct.  That acct is up 20% ytd after all the commissions.  I swing trade in that acct, trying to catch a 50 cent swing in F, or a $2-3 swing in TSLA.

I probably make 50-100 trades/mo across 5 IRA accts, totaling over $1 mil.  I'm thinking of transferring one of my wife's E-Trade acct to Merrilledge to get another 30 free trades/mo and a $1000 balance transfer bonus.  The stated balance transfer bonus is $600 for accts >$200k but they will offer $1000 if you ask.  They will also match the $4.95 trades that E-Trade is offering us.

xerty said:   
mrpresidentusa said:   
Anyone trading a lot in a tax deferred account?

  It depends on what you mean by a lot.  I trade "a lot" in my Roth by most standards, but very little presently compared to trading in my taxable account.  There are important differences in terms of lack of leverage, inability to sell short, and similar issues that make some of my trading less attractive in my IRAs. 

I've known people who ran their Roths up to 7+ figures on successful active trading.  Their problem is that they can't get any meaningful amount of the funds out for another 25 years without paying both taxes and an extra 10% penalty.  You have a hard time doing an early retirement with most of your assets in a Roth, and the 72(t) stuff doesn't let you upgrade to a mansion.

  
Based on the lack of margin on retirement accounts, inability to sell short, etc, does it makes more sense to "swing trade" on a Roth IRA or Traditional IRA? From reading FWF it seems you know a lot about trading. Thanks for the info on what trading strategies best suit this types of retirement accounts.

noelandres said:   
xerty said:   
mrpresidentusa said:   
Anyone trading a lot in a tax deferred account?

  It depends on what you mean by a lot.  I trade "a lot" in my Roth by most standards, but very little presently compared to trading in my taxable account.  There are important differences in terms of lack of leverage, inability to sell short, and similar issues that make some of my trading less attractive in my IRAs. 

I've known people who ran their Roths up to 7+ figures on successful active trading.  Their problem is that they can't get any meaningful amount of the funds out for another 25 years without paying both taxes and an extra 10% penalty.  You have a hard time doing an early retirement with most of your assets in a Roth, and the 72(t) stuff doesn't let you upgrade to a mansion.

  
Based on the lack of margin on retirement accounts, inability to sell short, etc, does it makes more sense to "swing trade" on a Roth IRA or Traditional IRA? From reading FWF it seems you know a lot about trading. Thanks for the info on what trading strategies best suit this types of retirement accounts.

  
Note that even though you can't have margin in a retirement account you can trade futures which gives you a lot of leverage, for example for $3500 per ES contract you get $80k+ of notional value

winter said:   
noelandres said:   
xerty said:   
mrpresidentusa said:   
Anyone trading a lot in a tax deferred account?

  It depends on what you mean by a lot.  I trade "a lot" in my Roth by most standards, but very little presently compared to trading in my taxable account.  There are important differences in terms of lack of leverage, inability to sell short, and similar issues that make some of my trading less attractive in my IRAs. 

I've known people who ran their Roths up to 7+ figures on successful active trading.  Their problem is that they can't get any meaningful amount of the funds out for another 25 years without paying both taxes and an extra 10% penalty.  You have a hard time doing an early retirement with most of your assets in a Roth, and the 72(t) stuff doesn't let you upgrade to a mansion.

  
Based on the lack of margin on retirement accounts, inability to sell short, etc, does it makes more sense to "swing trade" on a Roth IRA or Traditional IRA? From reading FWF it seems you know a lot about trading. Thanks for the info on what trading strategies best suit this types of retirement accounts.

  
Note that even though you can't have margin in a retirement account you can trade futures which gives you a lot of leverage, for example for $3500 per ES contract you get $80k+ of notional value

  
That is good to know. Thanks for the info. I've never been interested in trading futures, probably because of ignorance about that type of security. But I guess it is worth thinking about learning trading futures, if just for that reason alone (trading Roth IRAs). 

I just wonder why you can have leverage with trading futures on a retirement account, and not with trading equities. Is the leverage with futures something "implicit" of that market?

If you were able to generate significant and consistent short-term gains in a tax-exempt account, such as through arbitrage transactions, then you could open yourself up to having the income be classified as business income which would subject you to Unrelated Business Taxable Income. For just smart investing that beats the market I can't see that happening. And of course anytime you can avoid paying tax on a gain you have a significant advantage. You'll pay tax on the money eventually, but if you defer $10,000 in tax today that money can keep earning you a profit until you finally withdraw it, generating additional gains that would have never been possible.

Regarding futures being traded in IRAs, I imagine this is a regulatory oversight. Gaining additional leverage is in no way part of the intended uses of retirement accounts, and I imagine at some point if enough people blow up their accounts using it we will see some action taken that restricts options, futures, and any other derivative contracts from being traded in these types of accounts.

 
noelandres said:   
winter said:   
noelandres said:   
xerty said:   
mrpresidentusa said:   
Anyone trading a lot in a tax deferred account?

  It depends on what you mean by a lot.  I trade "a lot" in my Roth by most standards, but very little presently compared to trading in my taxable account.  There are important differences in terms of lack of leverage, inability to sell short, and similar issues that make some of my trading less attractive in my IRAs. 

I've known people who ran their Roths up to 7+ figures on successful active trading.  Their problem is that they can't get any meaningful amount of the funds out for another 25 years without paying both taxes and an extra 10% penalty.  You have a hard time doing an early retirement with most of your assets in a Roth, and the 72(t) stuff doesn't let you upgrade to a mansion.

  
Based on the lack of margin on retirement accounts, inability to sell short, etc, does it makes more sense to "swing trade" on a Roth IRA or Traditional IRA? From reading FWF it seems you know a lot about trading. Thanks for the info on what trading strategies best suit this types of retirement accounts.

  
Note that even though you can't have margin in a retirement account you can trade futures which gives you a lot of leverage, for example for $3500 per ES contract you get $80k+ of notional value

  
That is good to know. Thanks for the info. I've never been interested in trading futures, probably because of ignorance about that type of security. But I guess it is worth thinking about learning trading futures, if just for that reason alone (trading Roth IRAs). 

I just wonder why you can have leverage with trading futures on a retirement account, and not with trading equities. Is the leverage with futures something "implicit" of that market?

  Yea its a little strange, the explaination I have seen is that a typical stock margin account is treated as a loan which isn't allowed whereas when you are trading futures it isn't considered a loan.

Actually I found a link that explains it better:   http://www.investopedia.com/university/futures/futures4.asp

In terms of trading in retirement accounts, the best source of information I have found is :  http://www.greencompany.com/  

The IRA ban on leverage isn't really on leverage, it's on the extension of credit or rather that the assets cannot be pledged to guarantee a loan. Futures contracts involve no extension of credit, just a performance bond. It's confusing because they call the bond margin, but it's not trading on margin in the same way you would in a taxable securities account. Same goes for single-stock futures or long options in IRA's.

The leverage vs. no leverage thing has been debated a lot already, so I won't get into it, other than to say that mild leverage isn't necessarily going to hurt you. I'm talking about levering your existing holdings 1.3:1 or so just to raise enough cash for a short-term trade or special situation in an IRA, without having to reduce your exposure to your long-term allocation.

Day trading in an IRA is a great way to incur losses that are not deductible. Remember, you can still beat the market and take a beating.

DavidScubadiver said:   Day trading in an IRA is a great way to incur losses that are not deductible. Remember, you can still beat the market and take a beating.
  
If you don't know what you are doing, day trading an IRA (Roth or traditional) is stupid, as you said. But if you know what you are doing, then this is the way to go IMHO. Just imagine growing your Roth IRA to 1MM+, and receiving $50k in tax free money on retirement. My dream is having most of my retirement income come from a Roth IRA, and not pay any more taxes

noelandres said:   
DavidScubadiver said:   Day trading in an IRA is a great way to incur losses that are not deductible. Remember, you can still beat the market and take a beating.
  
If you don't know what you are doing, day trading an IRA (Roth or traditional) is stupid, as you said. But if you know what you are doing, then this is the way to go IMHO. Just imagine growing your Roth IRA to 1MM+, and receiving $50k in tax free money on retirement. My dream is having most of my retirement income come from a Roth IRA, and not pay any more taxes

 IF day trading makes sense, then a tax-free or tax-deferred account is the place to do it.  That's a pretty gigantic IF, however. 



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