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Ted, thank you for an *incredibly* informative post.
Re: the specific "trading an IRA" question I raised -- I suspect this
is of interest to a lot of people, so I'd like to pursue it a bit
farther.
> Also if someone trades only IRA accounts there is a whole other
> consideration, which needs to be addressed. There has never been a
> case on the books that I know of, but I have been told from the
> head of the IRS division on trading policy that if they find you
> Trading your IRA and considering yourself in the business of
> TRADING then they might disallow the IRA because you should not be
> running a business in a retirement account.
Gack!!
I don't intend to have another period of "trading only an IRA," but I
fully intend to trade my IRA alongside my regular trading accounts.
And I suspect I'm not the only one.
So allocating activity between "trading" and "investing" (parceling
out the writeoffs &etc) might help with this. But I have another
idea.
Let's say I'm NOT a trader, just someone with an IRA who likes
futures. If I have a CTA trade the IRA for me, that's peachy keen.
I'm just a client of the CTA, and I pay the guy 20% of profits or
whatever (out of the IRA). I assume the IRA has no problems with
that. I've done it before with CTAs and with a manager who traded
stocks. It's really no different than paying 3% to Fidelity for
mutual funds. We just drew up a document that allowed the IRA to pay
the CTA his fee, just like the IRA pays the commissions on each trade.
What if the "CTA" who trades it is *me*? (Or, rather, my
corporation, wherein I run my trading business.)
Can I trade my IRA as part of my "trading business," taking full
credit for the trading activity, and just have my IRA pay my "trading
business" 20% of profits just like I did for the CTA? In other
words, if I separate it out as a business activity and charge for the
service, that would seem to solve the problem. Especially since the
entity doing the trading and charging the fees (my corporation) is
separate from the entity who owns the IRA and pays the fees (me).
That would have the benefit of removing any question about whether my
trading activity was all tax-qualifying trading activity, it would
simplify the return since I wouldn't have to divvy up my trading
expenses into "trading" and "investing" pieces, and it even increases
my bottom line by extracting some penalty-free $$ out of the IRA.
It seems like a great answer to me. So probably the IRS wouldn't
allow it. :-\
Getting the 20% out of the IRA could be a challenge. As I said, I've
done it with a "real" CTA, but I don't know if it would be more
difficult to do it with a non-registered trading entity (my corp).
Any guesses on that?
Thanks!!
Gary
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