Transferring wealth into a tax deferred account

[heech]

... with high probability. The advantages of tax-deferred compounding is obvious.

So, I wonder if I could do this:

- sell $100k of deep OTM strangles, in IRA account.
- buy $100k of same strangle, in regular account.

With 95% probability, I essentially end up moving $100k into the IRA account from the regular account. With 5% probability, I move $100k into the taxable account.

Anything wrong with this? IRA accounts can't open margin securities accounts, but can open futures accounts supporting option writing.

 

[JJacksET4]

Without thinking too hard about it, here are some thoughts:

1. You would lose money with bid/ask spreads, especially since you are mentioning it would be deep OTM strangles. It seems like this could be a serious amount, since the B/A spreads for the options would often be something like .40/.50. I assume if you aren't a MM it would be impossible to expect to get for example a middle fill on all orders (i.e. .45 for the sell and the buy in that example)

2. Just to note it, there is probably also a small possibility that there would be less then 100K transferred or lost with each account for example if the stock ended right near one of the strikes. You could end up for example gaining $50K in the retirement account and losing 50K in the regular account - probably not a problem, but just to point it out.

Also, even if you could sell 100K of strangles in the IRA account, wouldn't that require a large amount of margin?

JJacksET4

 

[nazzdack]

Quote from heech:
----sell $100k of deep OTM strangles, in IRA account.
----Anything wrong with this?
----futures accounts supporting option writing.

?....It's possible that a firm may not let you do that trade in an IRA.

 

[newwurldmn]

If you pick the right stock and option you could put a mid market bid/offer out there in one account and hit/lift it with the other. this would reduce your slippage (but you would still pay 2 commissions).

it's probably illegal but i don't know. i know that i had looked at trading across two entities before and without economic reason to do so (hedging or something) you can get into some trouble.

 

[heech]

If it's a wash sale, and you're trading with yourself, thats definitely an issue. But that's why I'm asking here.... Anyone think it's a legal issue otherwise? I can't think of a reason why it'd be if we just joined a liquid market and traded with others.

As far as spread and commissions goes.... Maybe we just do ATM straddles instead. Fewer contracts, ask/offer much less of an issue, margin less of an issue, and still high probability net funds go in the short straddle account.

And I mean... I'm paying 35% of gains every year in taxes. Losing a few % on commissions doesn't seem so bad.

 

[spindr0]

If this was allowed, possible problems would include deferring loss to a less beneficial year and losing the carry forward deferral if you die before selling the replacement stock.

But it's not kosher. It's a wash sale violation and the IRS has ruled that if you or a related person do it, you'll lose the loss deduction (see Rul. 2008-5).

Whether the IRS can figure out that you did it is another story...
only an audit would nab it.

 

[heech]

Quote from spindr0:

If this was allowed, possible problems would include deferring loss to a less beneficial year and losing the carry forward deferral if you die before selling the replacement stock.

But it's not kosher. It's a wash sale violation and the IRS has ruled that if you or a related person do it, you'll lose the loss deduction (see Rul. 2008-5).

Whether the IRS can figure out that you did it is another story...
only an audit would nab it.

Here's the ruling you referred to:

http://www.irs.gov/pub/irs-drop/rr-08-05.pdf

Note that futures contracts are not securities, and the other taxation considerations you mentioned already don't apply. And in this context, I'm not looking for a tax deduction in the taxed account.... Just to move capital into the taxed account.

And I guess to be safe, you could always trade different instruments... In which case, taxed account is just a hedge.

 

[spindr0]

Quote from heech:

...I'm not looking for a tax deduction in the taxed account.... Just to move capital into the taxed account.

And I guess to be safe, you could always trade different instruments... In which case, taxed account is just a hedge.

1) I'm confused. The title is "Transferring wealth into a tax deferred account" but now you want to move capital into the taxed account? Typo?

It's not about looking for a tax deduction but that a tax deduction results from moving capital into a deferred account.

Whether futures are exempted from existing wash sale rules is beyond me. A good CPA might get you closer to the correct answer. You might alos post on Fairmark.com but a response wouldn't be the gospel unless they provided a link to statutes/rulings.