Prop Trader w/K-1 Which IRA to choose?

P

PhiSigmaIota

Now I am confused. One of my Financial Advisor buddies insisted that I should have a SEP IRA so that I can deduct it from my taxes and invest for retirement and here from the forums I read that for prop traders w/K-1's only Roth IRA is possible. So has any of you w/K-1's have SEP IRAs, Roth or what:-)
Time is running out for my taxes so I am in a rush:-)
Thank you..
 
You don't get any of those options...because you don't have earned income. Check out greentrader tax, they have some great info there.

If your firm allows you to join as an llc, then there is hope because you can pay yourself to manage the llc, creating earned income, which allows you to create a mini 401k and then start investing the big bucks.

I am not an accountant or tax advisor so do your own homework or consult a tax professional.
 
I have checked out Green Trader before. Are you also prop trader w/K-1? It is funny to see, we are earning money but it is not considered income unless you establish an entity for yourself.
My Financial advisor buddy confused me, as he insisted I should have a SEP IRA immediately and take the deduction. I guess he was not aware of this special status of prop traders..
So no IRA/401K deductions what so ever unless you establish an entity for yourself?
 
Quote from mschey:

You don't get any of those options...because you don't have earned income. Check out greentrader tax, they have some great info there.

If your firm allows you to join as an llc, then there is hope because you can pay yourself to manage the llc, creating earned income, which allows you to create a mini 401k and then start investing the big bucks.

I am not an accountant or tax advisor so do your own homework or consult a tax professional.
More...

At the same time, it sounds as if the IRS is challenging the prop business structures and are calling the members ...employees. Nothing firm from them yet, though.

The IRS really seems to be churning a lot of the trader structures, requirements, and deductions as of late. They had nicely clarified many grey areas, but we once again digress into muttled tax law.

In the end, it depends on your structure. What type of tax forms do you get from your prop? As a K-1 partnership, there can be some wrangling from the prop that creates a SEP set up for everyone, but unlikely.

Roth, unlikely.....unless your an employee, and earning below the phase out limits.

Agreed, check out greentradertax.
 
Quote from MR.NBBO:At the same time, it sounds as if the IRS is challenging the prop business structures and are calling the members ...employees. Nothing firm from them yet, though.

The IRS really seems to be churning a lot of the trader structures, requirements, and deductions as of late. They had nicely clarified many grey areas, but we once again digress into muttled tax law.
More...
IRS/SEC is not challenging prop traders as a legitimate industry se (and there's no worsening of further mottled of the tax law, IMO). The problem is (as in many cases when IRS proactive action is required) some promoters out there erroneously, out of sheer ignorance, false bravado or otherwise (take your pick) were touting and assisting in setting up improper prop business structures with some variations of a hokie 1099-MISC concept or an "I don't exist" concept.

Of course, as you correctly stated, the individual persons are either LLC members, or employees, or other time-tested and accepted arrangement and not the half-assed set-ups promoted by certain internet based promoter/advisors.

In that regard, to the extent of blatant violation of IRS regulations yes the taxpayer should beware.
 
Quote from traderstatus:

IRS/SEC is not challenging prop traders as a legitimate industry se (and there's no worsening of further mottled of the tax law, IMO). The problem is (as in many cases when IRS proactive action is required) some promoters out there erroneously, out of sheer ignorance, false bravado or otherwise (take your pick) were touting and assisting in setting up improper prop business structures with some variations of a hokie 1099-MISC concept or an "I don't exist" concept.

Of course, as you correctly stated, the individual persons are either LLC members, or employees, or other time-tested and accepted arrangement and not the half-assed set-ups promoted by certain internet based promoter/advisors.
More...

Do you have any examples or links on any of those scams or enforcement actions?
 
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