Margin Call on an IB IRA account (Need Suggestions)

loufah · Jul 12, 2005

Quote from vhehn:

a little known fact is that options expire on saturday not on friday close.

IB does the expiration on Friday. I got flagged as a PDT there because some option positions I opened on Friday-before-expiration-Saturday expired worthless and the act of expiration got counted as a day trade.

loufah · Jul 12, 2005

Quote from Quah:

The only thing brokers could do differently is force long call holders to sell their options hours before the close is they are anywhere near expiring in the money - or else have on deposit enough money to cover any possible exercise.

But doing that really isn't their job.

FWIW... Ameritrade sends email a couple days before expiration warning us to have enough cash, positions, or buying power to cover any exercises or assignments, and says they "reserve the right to liquidate on the final trading day before expiration if the situation warrants."

loufah · Jul 15, 2005

Here's another interesting one. CYBX was halted today about a half hour before the close, at $44.98. Then it was announced that the FDA approved its device. It's still halted. Indications are that if it resumes trading today, it'll trade at about $50. People who hold July $45 and $47.50 calls are wondering if they should elect to exercise them before their brokers' cutoff times this afternoon.

murray t turtle · Jul 16, 2005

Quote from developer17:

Quah,

I do accept that it was my fault
that I didn't inform IB about not exercising. But look at what really happened.

THe auto exercise by the OCC happened at 4:40 PM EST as per IB and my statement. Instead of liquidating me at the open on Monday, they could have gotten me out on Friday itself for a smaller loss or maybe no loss at all. They received the Auto Exercise instructions on Friday before the after hours trading closed.

Even on Monday, it got liqidated at 9:40 AM (EST) when GOOG was pretty much at the low of the day. I'm not trying to blame anyone, but to just say that IB could have more checks in place at least for Risk Management.

AS per the NASD, you cannot lose more than your initial investment in a Cash account. Why make such a claim when there can be such a exception to the rule.

========================

Developer17;

a] Most of us have traded to large also & paid for it;
and the probabliities were certainly in your favor partly by trading with main trend !!!!!
Of course if the 9k/16 contracts is a small part of total trading funds then most of us are wrong in assuming you're trading to big.

b]As far as a securities lawyer ,like to get 5 or 10 free estimates;
prefer contingency fee , probably will not get that???
At least for sure get a hi-lo $$$estimate;
& hourly fee with no idea as to total cost is NOT acceptable to me. Have cut a loss on a lawyer or mortgage broker also.

c]Sir curNewton you had some good points and also the CBOE is part of1888options.com [options industry counsel] which sells books warning about last 2 weeks/expiry.

d] Think you are maybe right on cash account living its name;
but thats common bank/brokerage practice to take money out of 1 account to balance the other , probably signed permission to do so, with opening bank/brokerage account.

e-ego] Would be extra careful with lawyers whose interests diverge from yours & are glad to help you to get your EGO involved;
& perhaps bill you reguardless of arb panel results.

In a multitude of counselors there is safety-Solomon-trader king

developer17 · Jul 25, 2005

Folks,

IB moved the funds out of my other account to adjust the negative balance in the IRA.

I have had a regular trading account with IB for almost 5 years and regret ever trading with them. They have always been good in the past but treated me with cold indifference when I needed them most.

I have decided not to pursue any kind of legal action and make the lawyers rich, but have decided to share my experiences so that others can benefit from it.

THanks to eveyone for their support and valuable suggestions.

tomcole · Jul 25, 2005

YIPES!!!!!!!!!!!!!

Thats a helluva story.

If they moved money from a regular a/c to a IRA a/c, AT WILL & WITHOUT YOUR PERMISSION, that has to be one wild tax question for you.

Is there a legal precednce for this or an IRS opinion? I'd love to see it.

If you're already maxed out how much you can put into IRA type a/cs and move yet even more, whos responsible? Did they move capital, trading profts or what?

You need a lawyer my friend, this is a growing nightmare.

winter · Jul 25, 2005

I think the only issue that remains is whether IB will count this forced transfer as an IRA contribution (and generate the appropriate IRS records) or not. If they don't then there is no issue, you don't report it, they don't report it - the IRS never needs to know about it, case closed. Unfortunately you wont know for sure until next year if they are going to notify the IRS. If they do notify the IRS and presumably it exceeds the maximum IRA contribution for this year then I imagine you will be hit with penalties.

http://www.irs.gov/publications/p590/ch01.html#d0e7378

Tax on Excess Contributions

In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax cannot be more than 6% of the value of your IRA as of the end of your tax year.

The additional tax is figured on Form 5329. For information on filing Form 5329, see Reporting Additional Taxes, later.

alanm · Jul 25, 2005

Quote from winter:
I think the only issue that remains is whether IB will count this forced transfer as an IRA contribution

It's not up to IB. Whether they generate the paperwork or not is perhaps in question, but that doesn't affect what the law requires of you (d17, that is). He needs to ask the IRS.

JackR · Jul 25, 2005

Tax on Excess Contributions

In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. The tax cannot be more than 6% of the value of your IRA as of the end of your tax year.

The question is what does the emphasized sentence in the IRS extract mean? The IRA will have zero value at the end of the year. There are no excess amounts remaining "in the account."

An interesting question which I'm glad Developer17 has to find out the answer to, not me!

Free Thinker · Jul 25, 2005

Quote from alanm:

Quote from winter:
I think the only issue that remains is whether IB will count this forced transfer as an IRA contribution

It's not up to IB. Whether they generate the paperwork or not is perhaps in question, but that doesn't affect what the law requires of you (d17, that is). He needs to ask the IRS.

maybe he should be happy ib can replace the money in the ira and not make waves or it could cost him more money on top of the fact that losses in an ira are not deductible. if it were me i would accept my lesson and be quiet before it gets worse.