IRA Account without waiting for T+3. IB has one. Is it legit?

[comintel]

Quote from GTS:

Let's be clear here - performance bond or not, it would be quite easy for a highly leveraged IB IRA to go negative with futures - the market just has to gap widely against your futures position and you would be negative before they could liquidate you.

Presumably IB would require you to bring the account to zero but IRA rules might prevent you from doing that lest you create a situation where you have over-funded your IRA...not sure what happens in that case....I wonder if IB would let you square the account by making a cash transfer from a non-IRA account.

Disclaimer: I do have a IB SEP-IRA account that I trade futures in but I keep plenty of extra cash/equities in it.

They cannot require you to make up any loss. The trustee is the owner of the account and you are just the beneficiary.

They do not and cannot legally require that you guarantee the account personally.

They would just have to take the loss themselves. Presumably they believe that their margin requirements and monitoring are good enough to stop any loss from getting out of hand.

 

[GTS]

Quote from comintel:

I believe it is the Trustee that is responsible for determining the types of investments that are allowed in an IRA account.

The trustee is the legal holder of the account.

You are "just" the beneficiary of the account, and also the person making trades on behalf of the trustee under rules set up with IB by the trustee.

If it was found that anything in the way of improper practices was taking place, I believe that you would have recourse against the trustee for any IRS penalties. After all, you rely on the expertise of the Trustee to qualify the IRA trust.

There is no way that is correct. You can make all sorts of exotic investments in an self-directed IRAs using trustees that allow such things - you are saying if you make an investment that is disallowed that you can go after the trustee because they shouldn't have let you do it?!? If you look at the language of the trustee agreements they explicitly say they have no control over your investment decisions. Also they could not be aware of your conflict of interests that could disallow specific investments - how could they be liable?

From the IB IRA customer agreement "I understand Principal Trust Company is not an investment advisor and does not supervise or control my investment representative."

https://www.interactivebrokers.com/...le=registration_1/ira_customer_agreement.html

If you read the thread that jackpearson linked to in his last post you will see that there is discussion that active trading in IRA could be disallowed while less-active trading is fine... expecting IB to be able to monitor/control whether you crossed some invisible threshold that could run afoul of the IRS is not reasonable.

They cannot require you to make up any loss. The trustee is the owner of the account and you are just the beneficiary.

They do not and cannot legally require that you guarantee the account personally.

They would just have to take the loss themselves.

That isn't what IB says - again from the IB IRA Customer Agreement:

IF AT ANY TIME CUSTOMER'S ACCOUNT HAS INSUFFICIENT EQUITY TO MEET MARGIN REQUIREMENTS OR IS IN DEFICIT, IB HAS THE RIGHT, IN ITS SOLE DISCRETION, BUT NOT THE OBLIGATION, TO
LIQUIDATE ALL OR ANY PART OF CUSTOMER'S POSITIONS IN ANY OF CUSTOMER'S IB ACCOUNTS, INDIVIDUAL OR JOINT, AT ANY TIME AND IN ANY MANNER AND THROUGH ANY MARKET OR DEALER, WITHOUT PRIOR NOTICE OR MARGIN CALL TO CUSTOMER. CUSTOMER SHALL BE LIABLE AND WILL PROMPTLY PAY IB FOR ANY DEFICIENCIES IN CUSTOMER'S ACCOUNT THAT ARISE FROM SUCH LIQUIDATION OR REMAIN AFTER SUCH LIQUIDATION.

Presumably they believe that their margin requirements and monitoring are good enough to stop any loss from getting out of hand.

So you don't think ES could gap 50 points intraday?

 

[comintel]

"You can make all sorts of exotic investments in an self-directed IRAs using trustees that allow such things - you are saying if you make an investment that is disallowed that you can go after the trustee because they shouldn't have let you do it?!? If you look at the language of the trustee agreements they explicitly say they have no control over your investment decisions. Also they could not be aware of your conflict of interests that could disallow specific investments - how could they be liable?"

There is no such disclaimer that I know of in the IB agreement so that is a different situation.



"From the IB IRA customer agreement "I understand Principal Trust Company is not an investment advisor and does not supervise or control my investment representative.""

They are not holding themselves out as an investment advisor but surely they are holding themselves out as experts in designing IRA trusts relating to taxation and legal issues.


"If you read the thread that jackpearson linked to in his last post you will see that there is discussion that active trading in IRA could be disallowed ...."

A purely hypothetical and highly doubtful theory, as pointed out in that thread. No one has ever come up with an example of that happening and there is no IRS warning about that in connection with conventional broker IRA's.


"CUSTOMER SHALL BE LIABLE AND WILL PROMPTLY PAY IB FOR ANY DEFICIENCIES IN CUSTOMER'S ACCOUNT THAT ARISE FROM SUCH LIQUIDATION OR REMAIN AFTER SUCH LIQUIDATION."

OK thanks for finding that in the agreement. I think it might be improper for IRA's but I see it is there so if it is enforceable then they could sue you for the balance.
...
"So you don't think ES could gap 50 points intraday?"

Yes it could. I was talking about what IB must be thinking in terms of their ability to control losses, not what I think.