As I recall, the problem relating to futures margin in an IRA retirement account was that if you blew out your account in a fast moving market and you owed your broker money, there are regulatory obstacles to adding money to your account to make up the loss because you are only allowed to deposit a maximum amount per tax year. So this created a very odd situation that doesn't exist in a regular non-IRA account. It seems that IB's solution was to increase the margin significantly so your position will be closed automatically by IB's risk program when you reach the margin minimum and before you incur any liability to the broker.
Problems trading futures in IRA accounts at IB?
- Thread starter chanelops
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There are no "regulatory obstacles" to repaying your broker in this situation. If you read through all of the verbiage on this you’ll see that it is actually a nonissue. Without going into all the details, the bottom line is if you owe your broker any money you can pay that within or outside of an IRA. If you owe the broker money, and, due to the IRA restrictions, those moneys are unable to be paid through the IRA account you simply pay outside the IRA account. The IRS doesn’t care that the debt is paid that way and the broker doesn’t care either.
That's different from what I recall, but thanks for posting this correction. In this case, why did IB triple the margin requirement for IRA futures accounts?
I'd like to see a determination letter or something more concrete with this interpretation. Its non-obvious from the way the law and the code is written. I'd may very well be wrong, but absent something that clearly backs this viewpoint up I wouldn't rely on it as correct.
A portion of this is because it looks bad when a large broker goes after some unfortunate guy who just blew through his entire retirement account for even more money. But mostly it's because some like to impersonate other people's mothers thinking they are protecting them. And even though they'll proffer other rationalizations, they think they know what's best for them. You can see this same thought process in other places: jurisdictions that don't allow sales of alcohol on Sundays, a bill to allow blackjack at Florida racinos but with a $5 maximum bet, not allowing Internet sales of lottery tickets, denying abortions to women unless they wait some period of time first, etc. All from those righteous folks that know better than you what's best for you. And that's why some firms restrict futures trading in retirement accounts and others don't.
I didn't say the law and the code take you off the hook for a debt, at least that's not what I intended to convey. I disagree specifically with the statement that "The IRS doesn’t care that the debt is paid that way ..." The IRS very much cares and you're on the hook for some pretty big penalties because you're forced to over-contribute to your IRA. There is nothing in the earlier portion of the thread or the thread it references that contradicts that, but again if there is something in the U.S. Code, which is what we who pay taxes to the IRS are subject to, then I'd be happy to be educated on it. A determination letter, which is a letter that applies only to the taxpayer covered by the letter but is a good indication of the IRS' thoughts on the matter, would also be interesting. "go find an old thread" is less useful.
on an aside note:
well, some of the more heavily used retail level start to act strangely when heavy selling is seen for extended periods on wall street. This was seen a lot back in 2008/2009 and as of approx Jan 12, 2016 Tradestation has pulled my margin in my IRA equities account (there was no letter or message, they just stopped giving access to the funds after the first trade of the day and did not give access agin until after the 3 days settlement period had passed) . Around this same time ThinkorSwim did a major update to its java based platform which caused three of my workstations to have no access to ThinkorSwim (not an IRA). One of the workstations (Linux) still does not have access. The others (windows 8.1) needed hours of java updating, new downloads of TOS software and much Java settings adjustments. On many of the heavy selling days in early Jan 2016 my Ameritrade account (not an IRA) froze and stayed frozen for hours during prime trading on NYSE.
All these actions seem to add up to retail brokers trying to prevent selling. My main account is with Interactive Brokers (non-IRA) and its been working well. These are just some of the reason full time traders use non-retail, direct access with settlement brokers, even if they don't trade in large volume.
well, some of the more heavily used retail level start to act strangely when heavy selling is seen for extended periods on wall street. This was seen a lot back in 2008/2009 and as of approx Jan 12, 2016 Tradestation has pulled my margin in my IRA equities account (there was no letter or message, they just stopped giving access to the funds after the first trade of the day and did not give access agin until after the 3 days settlement period had passed) . Around this same time ThinkorSwim did a major update to its java based platform which caused three of my workstations to have no access to ThinkorSwim (not an IRA). One of the workstations (Linux) still does not have access. The others (windows 8.1) needed hours of java updating, new downloads of TOS software and much Java settings adjustments. On many of the heavy selling days in early Jan 2016 my Ameritrade account (not an IRA) froze and stayed frozen for hours during prime trading on NYSE.
All these actions seem to add up to retail brokers trying to prevent selling. My main account is with Interactive Brokers (non-IRA) and its been working well. These are just some of the reason full time traders use non-retail, direct access with settlement brokers, even if they don't trade in large volume.
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First of all I never said, "go find an old thread." You lied. You either don't know enough English to ascertain that if you put quotes around something alleging what someone else said, it better be accurate, or you are a liar.
Regardless, now I see what you are talking about. You're worried about a possible tax penalty if you pay your debt within, rather than outside of the retirement account. Well, you didn't say that before.
Now back to the issue at hand and the topic of this thread: It's best to go with a broker that does not portend to be an overbearing mother by artificially restricting trading in a retirement account just to keep you from losing your retirement funds (and possibly incurring a tax penalty). Period.
Really? So you think the executives at IB are sitting in a meeting room talking about how to be protective mothers? It might surprise you that businesses usually impose restrictions to protect themselves, not their customers.