A hundred people here could tell you that you can do x, y and z in your 401k, and it is meaningless. It varies from broker to broker on what they allow, so it is best to go to the source. And if your employer does not have the brokerage option in your 401K you are stuck with mutual funds. You definitely have more flexibility in a self-directed IRA.
Trading using 401K
- Thread starter Adobian
- Start date
A hundred people here could tell you that you can do x, y and z in your 401k, and it is meaningless. It varies from broker to broker on what they allow, so it is best to go to the source. And if your employer does not have the brokerage option in your 401K you are stuck with mutual funds. You definitely have more flexibility in a self-directed IRA.
Many of the traditional brokerage companies, like Schwab, Fidelity, etc., do not let you trade futures in your IRA account. However, you can trade options on stocks and ETFs in your IRA. 401 Ks usually have a very limited number of mutual funds that you can invest in. However, if you leave your job, you can roll your 401K into an IRA to vastly increase your investment options. If you are self-employed, there are several other options mentioned by other posters above.
If you want to trade futures in your IRA, you have to open a self-directed IRA. Just ask your futures broker what companies they work with.
I opened a self-directed IRA with Equity Trust Company. I can trade futures, but a percentage of the profit is taxable because you trade futures with margin. Margin is like a loan, so whatever profit you make from the margin portion is taxable, because it is not IRA money. Self-directed IRAs also let you invest in other unconventional activities such as real estate, tax liens, private loans, etc. However, there is some education involved to make sure you do everything legally and handle any potential taxes properly.
If you want to trade futures in your IRA, you have to open a self-directed IRA. Just ask your futures broker what companies they work with.
I opened a self-directed IRA with Equity Trust Company. I can trade futures, but a percentage of the profit is taxable because you trade futures with margin. Margin is like a loan, so whatever profit you make from the margin portion is taxable, because it is not IRA money. Self-directed IRAs also let you invest in other unconventional activities such as real estate, tax liens, private loans, etc. However, there is some education involved to make sure you do everything legally and handle any potential taxes properly.
Hi
What I am looking for is what is permissible to trade in an IRA account. What a particular broker offers is irrelevant as I can always go from one to another. I am just trying to ascertain the rules as to what governs what is traded in an IRA account. Even at IB, asking customer service a question will get you 2 different answers. And looking thru the IRS website offers no help.
If you have info, much appreciated and if not, thanks anyway.
Regards
What I am looking for is what is permissible to trade in an IRA account. What a particular broker offers is irrelevant as I can always go from one to another. I am just trying to ascertain the rules as to what governs what is traded in an IRA account. Even at IB, asking customer service a question will get you 2 different answers. And looking thru the IRS website offers no help.
If you have info, much appreciated and if not, thanks anyway.
Regards
This company can tell you all the rules.
http://www.trustetc.com/
I have all the rules in CDs they produced, but cannot remember them off-hand. I know you cannot buy your home, your children or parents home with IRA money and you cannot invest in your own business with your IRA money. But there are many other investment options available. If the information you desire is not on their website, call them and ask if they can send you a CD or an article describing what you can and cannot invest in using a self-directed IRA.
Well taking 40k out will leave you with a payment of around 800 dollars a month. That is a lot of money to be taking out of a paycheck.
First thing is are you currently maxing out your 401k of 16.5k and maxing out a roth IRA if your able to? Your long term return "should" be better then paying your house off early.
Also as someone else pointed out, you take out 40k then lose your job 3 months later. You will get a 1099 for the balance of your loan and get hit with the 10% early withdrawl.
What I would do is instead having 800 a month taken out.... Put aside 1k a month then every 6 months or so take half of that balance and move it to your principle of your home. That way your building up a larger savings while you are paying down your mortgage. Would be a much safer play. Also would keep your 401k loan availible if you really needed it for ransom money or something
All in all, i think borrowing against your 401k is a bad idea.... No matter what it saves you, just puts more money in the governments pocket
Quote from jrlvnv:
Well taking 40k out will leave you with a payment of around 800 dollars a month. That is a lot of money to be taking out of a paycheck.
First thing is are you currently maxing out your 401k of 16.5k and maxing out a roth IRA if your able to? Your long term return "should" be better then paying your house off early.
Also as someone else pointed out, you take out 40k then lose your job 3 months later. You will get a 1099 for the balance of your loan and get hit with the 10% early withdrawl.
What I would do is instead having 800 a month taken out.... Put aside 1k a month then every 6 months or so take half of that balance and move it to your principle of your home. That way your building up a larger savings while you are paying down your mortgage. Would be a much safer play. Also would keep your 401k loan availible if you really needed it for ransom money or something
All in all, i think borrowing against your 401k is a bad idea.... No matter what it saves you, just puts more money in the governments pocket
People save and invest money for various reasons. Some want more security when they are seniors, some want to get out of financial obligations to have time and resources to pursue their hobbies. So to answer your ?s:
$800 is a lot of money but it goes right back to your account and not the bank's. I prefer paying myself $800 a month at 8% than paying my mortgage for a longer amount of time which translates to $ paying my bank that 800 a month plus 6% interest to boot.
As for becoming unemployed, I would imagine that having a mortgage and no income would be a much bigger issue. Also, by eliminating 40K from your mortgage you eliminate around 70K worth of payments from the loan. I would take being stuck with a bill from uncle Sam over losing a house any time of the day.
Another plus is that trying to save that $800 a month is much easier when one is forced to. Having that extra $$$ not taken automatically from the check would allow for extra unneeded spending. This way one buys Honda Accord instead of Lexus.
Like I said, different strokes for diferent folks so YMMV
Cheers!
Thanks for the straightforward info, Doc. Much appreciated.
Most brokers will not let their clients trade futures with IRAs. You can really only long mutual funds and stocks. I'd be really hesitant to place my funds in a broker who allows its clients to trade futures. 90% of people who trade futures LOSE ALL IF NOT MOST OF IT so I would strongly recommend not even trading futures at all unless you know what the hell you are doing. IRAs are for retirement, not for speculation. Take on futures trading with only money you can afford to lose - your IRA is not something you can afford to lose.
You are penalized 10% if you withdraw before the age of 59 1/2. Over that, its penalty free but you have to pay income tax at your tax bracket. IRAs are TAX DEFFERED, not tax free. The assumption is that you make less in your retirement years at a lower tax bracket and it lets you use these funds when you no longer work to draw upon.
If you are under 59 1/2 and choose to withdraw, you also pay income tax at the rate of your tax bracket. It is best that you check your income tax bracket and understand the consequences if you go over into the next bracket. Failure to understand this can make you give up another 15-20% of your gains to Uncle Sam. Its treated like ordinary income. If you are in the upper income tax bracket, it is STUPID to withdraw out of an IRA unless absolutely necessary.
You don't pay any capital gain taxes on your IRA (assuming you make money for the year). Nor do you report those gains. If you lose money, you cannot report it as a loss for the year.
My advice is to not use your IRA to trade company stocks. Use it to trade index ETFs because there will be a daily limit down tied to the index. All it takes is one bad news announcement in your company stock and you can blow your 401K to bits. Some people I know have gone this route, never had conscious money management, and used it to trade high flying momo issues. Then to see their stock cut in half as well as their IRA.
You are penalized 10% if you withdraw before the age of 59 1/2. Over that, its penalty free but you have to pay income tax at your tax bracket. IRAs are TAX DEFFERED, not tax free. The assumption is that you make less in your retirement years at a lower tax bracket and it lets you use these funds when you no longer work to draw upon.
If you are under 59 1/2 and choose to withdraw, you also pay income tax at the rate of your tax bracket. It is best that you check your income tax bracket and understand the consequences if you go over into the next bracket. Failure to understand this can make you give up another 15-20% of your gains to Uncle Sam. Its treated like ordinary income. If you are in the upper income tax bracket, it is STUPID to withdraw out of an IRA unless absolutely necessary.
You don't pay any capital gain taxes on your IRA (assuming you make money for the year). Nor do you report those gains. If you lose money, you cannot report it as a loss for the year.
My advice is to not use your IRA to trade company stocks. Use it to trade index ETFs because there will be a daily limit down tied to the index. All it takes is one bad news announcement in your company stock and you can blow your 401K to bits. Some people I know have gone this route, never had conscious money management, and used it to trade high flying momo issues. Then to see their stock cut in half as well as their IRA.
Do you have a Series 7/63 or are you just being a complete idiot. Given your response, you obviously are not a professional. Advising clients to trade high flying momo stocks with their IRA money is STUPID.