Biocentric Energy Holdings, Inc. (BEHL)

[jbsliverer]

Here's a short article on using retirement accounts for trading. It really is so far away from this little drama BEHL world and many of characters of the story, but there might be some interested parties given that the subject has come up. Believe me, it is a given that they are not discussing trading sub pinky crud in this type of investing. And of course the old as hills statement that has been spoken on this board many times before and in most if not all articles, brokers statements, research data, etc etc which is "consult your tax adviser" (there, any liability addressed).




Trading Restrictions in an IRA
Wednesday, October 31st, 2012 | Vance Harwood

IRAs are attractive to investors because they enable taxes on dividends and profits to be deferred (traditional IRA) or avoided (Roth). To a large degree you can do the same trades in an IRA that you can do in your regular accounts. However there are significant differences, and the differences change over time as brokers adjust their policies, and their software. I’ve tried to summarize the differences below.

Brokers vary in what transactions they allow in your IRA, but one restriction mandated by the IRS is that you cannot borrow from an IRA. Buying on margin and selling equities short involves borrowing from your broker, so those trades are definitely out.

The no-loan restriction can also impact how often you can trade in your IRA account. Since funds from equity sales take 3 days to settle, just like a regular non-IRA account, you can run into free-riding/ good faith violations if you do buy / sell sequences before your previous trade’s settlement. Some transactions like stop loss orders or option assignments can sell out your positions automatically, so you need to assess the risks of that happening within 3 days of your purchase. For more on free-riding see this post.

If you only buy securities when your account shows enough cash to cover the purchase as “settled cash”, or “cash available to withdraw” then you won’t violate the rules—even if you sell it five minutes later. It’s only when you are dependent on an upcoming cash settlement from a previous sale that you have to be careful. So if your cash balance is large compared to your trade size (e.g., $10K cash, $2K trades), then you could do up to 5 trades in a 3 day period before you had to worry about the settlement timing.

If you are trading indexes then the short sale restriction is often easy to circumvent by buying the corresponding short or leveraged short, 2X, 3X ETF (e.g, SH, SDS, SPXU for the S&P 500, PST and TBT for treasuries). In my experience any stock/ETF/ETN that can be bought in my regular account can be traded in an IRA account—so for example long, leveraged, and short volatility funds like VXX, TVIX, and XIV are allowed.

There is more variation between brokers on what options transactions are available in your IRA. I doubt any of them allow selling of naked calls or puts, but I know Fidelity and OptionsXpress support vertical spreads in their IRA accounts, whereas Schwab does not. Generally long puts and calls, covered calls, and cash secured equity puts are allowed if you are approved at the appropriate option levels. Fidelity restricts options spreads to non-cash settled options. I spoke with a Fidelity representative about this, and it sounds like this is probably just a software restriction that might be removed in the future. Cash settled options positions are actually easier to manage since they can’t result in of equity purchases / short sales if the options expire with the underlying’s price between the two strike prices. In addition cash settled options are often have European style exercise, which means they can’t be assigned until expiration. This is a nice feature for options spreads where you typically don’t want one leg of your spread to turn into a long or short equity position.

Several firms (Fidelity, optionsXpress) offer limited margin accounts in their IRAs to support buying/selling options spreads. It appears that Interactive Brokers and TD Ameritrade have IRA margin accounts that can be used to avoid free riding violations, but I have not verified that. IRA account holders using margin would probably be subject to the pattern day trader rules that require $25K in capital for accounts that trade often on margin, otherwise IRAs should look like cash accounts that aren’t subject to this rule.

The tax treatment of trades in IRAs is pretty simple—in the short term you don’t pay taxes on profits from individual trades, and you won’t be able to take a deduction for any losses. In a tax deferred account like a traditional IRA you’ll generally pay taxes on your gains when you make distributions, but in the meantime you’re compounding your money without paying taxes, which is a huge advantage. Of course taxes are a horrendously complicated subject, so consult your tax adviser for definitive answers.


http://sixfigureinvesting.com/2012/02/trading-restrictions-in-an-ira/