IRA, capital gains and related stuff

[Gary611]

I mostly trade with an IRA account, so I don't concern myself with tax consequences. I recently opened a regular brokerage acct & am concerned about capital gains. My question is regarding those nasty capital gains, does anyone know what the rates are? Short term (less than 1 year) & long term(1 year or more) I hear that they were recently lowered or eliminated, I guess I can go to the IRS, but hey, you people should be up on this!

Thanks,
Gary on long Island, USA

[sisterwin2]

ira account

I mostly trade with an IRA account, so I don't concern myself with tax consequences. I recently opened a regular brokerage acct & am concerned about capital gains. My question is regarding those nasty capital gains, does anyone know what the rates are? Short term (less than 1 year) & long term(1 year or more) I hear that they were recently lowered or eliminated, I guess I can go to the IRS, but hey, you people should be up on this!

Thanks,
Gary on long Island, USA

I would like to know how you trade with an IRA account? That seems the way to go for a little girl like me. Could you clue me in.

Dena

[Gatorman]

I mostly trade with an IRA account, so I don't concern myself with tax consequences. I recently opened a regular brokerage acct & am concerned about capital gains. My question is regarding those nasty capital gains, does anyone know what the rates are? Short term (less than 1 year) & long term(1 year or more) I hear that they were recently lowered or eliminated, I guess I can go to the IRS, but hey, you people should be up on this!

Thanks,
Gary on long Island, USA

Gary:
Short-term gains are taxed as ordinary income. Long-term are taxed at 15%.

[Gatorman]

I would like to know how you trade with an IRA account? That seems the way to go for a little girl like me. Could you clue me in.

Dena

Dena:
An IRA account contains qualified money. Most people who use them for trading are using funds that are rolled over from some other financial institution. Your brokerage house can guide you in transferring the funds. You are prohibited from withdrawing the profits without suffering a penalty and cannot use margin. Other than that, it is pretty much like any other trading account.

[billyjoe]

Sisterwin2,
If you trade on line, the numbered account will say next to it either IRA , SEP IRA, or ROTH IRA. They will ask in advance whether you want to reinvest dividends into stock including fractional shares or keep it in a money market fund in which case it will be totalled in with the dollar value of the stocks you may own. You can keep as much in cash or stocks what ever way you want to balance it. You can't buy on margin with an IRA account. Brokerage fees will be taken out automatically as well as yearly maintenance fees (maybe $30) or you could send a check to cover those fees if you wish. IRA and SEP IRA will be taxed only when you start taking $$ out age 59 1/2 or later. ROTH IRA won't ever be taxed since you pay tax on it before you started the ROTH. They will send you statements telling you what year the contributions were initially made ,but the money is accumulated in a lump sum, not by year of deposit.

billyjoe

[Gary611]

Thanks!!

Sisterwin2,
If you trade on line, the numbered account will say next to it either IRA , SEP IRA, or ROTH IRA. They will ask in advance whether you want to reinvest dividends into stock including fractional shares or keep it in a money market fund in which case it will be totalled in with the dollar value of the stocks you may own. You can keep as much in cash or stocks what ever way you want to balance it. You can't buy on margin with an IRA account. Brokerage fees will be taken out automatically as well as yearly maintenance fees (maybe $30) or you could send a check to cover those fees if you wish. IRA and SEP IRA will be taxed only when you start taking $$ out age 59 1/2 or later. ROTH IRA won't ever be taxed since you pay tax on it before you started the ROTH. They will send you statements telling you what year the contributions were initially made ,but the money is accumulated in a lump sum, not by year of deposit.
billyjoe

Sis, that says it better than I could put it, basicly your money is put in an IRA thru a brokerage house, & is taxed after age 59 1/2 as you withdraw it, as ordinary income.

-Gary

[IIC]

Sisterwin2,
If you trade on line, the numbered account will say next to it either IRA , SEP IRA, or ROTH IRA. They will ask in advance whether you want to reinvest dividends into stock including fractional shares or keep it in a money market fund in which case it will be totalled in with the dollar value of the stocks you may own. You can keep as much in cash or stocks what ever way you want to balance it. You can't buy on margin with an IRA account. Brokerage fees will be taken out automatically as well as yearly maintenance fees (maybe $30) or you could send a check to cover those fees if you wish. IRA and SEP IRA will be taxed only when you start taking $$ out age 59 1/2 or later. ROTH IRA won't ever be taxed since you pay tax on it before you started the ROTH. They will send you statements telling you what year the contributions were initially made ,but the money is accumulated in a lump sum, not by year of deposit.

billyjoe

I never heard of a yearly maintenance fee.

You can open an IRA, SEP, Roth, Rollover at most any brokerage. But since you cannot margin on one you also have to deal w/ unsettled funds.

To explain what unsettled funds is...I think I will give an example:

Let's say that you have $20,000 in an IRA trading account.

You buy 1000 shares of a stock today for $18,000...Say it costs you 10 bux commish.

You sell those 1000 shs next Tuesday for $19,000.

OK...You have the $2000 you never invested and the $19,000 minus $20 commish you paid on the round trip trade. Total $20,980.

You can trade the $2,000 any way you want including a day trade.

On that "unsettled" $18,980 you can buy another stock(s) with it on Tuesday after you sold whatever...BUT, you have to wait 3 days to sell it (Takes 3 days to settle the original sale on Tuesday). If you let it settle after the 3 days and don't use it to buy anything...then you can do whatever you want with it...even day trade it.

BUT WAIT...What happens if you decide to buy w/ unsettled funds on Tuesday and sell on Wednesday before they are settled??? Apparently not much...Because I've done it before and all I ever got was a BIG FAT WARNING EMAIL that if I do it again my account could be restricted. What does restricted mean? Probably different things to different brokers...Maybe, no internet trades for 90 days, no buys w/ unsettled funds for 90 days...Heck, I dunno???...But what's the worst that can happen??? They restrict you in some way...And you pull it out and go to another broker...Don't worry...You are not going to jail...You have violated Federal Reserve Regulation T and taken a "FREE RIDE"...But so what???

But I have a "SUPER" Big problem w/ this Unsettled Funds thing...Somebody is making money on this rule...And it isn't you or me...Who is REALLY getting the Free Ride??? We had a discussion about this here at Mr. M maybe a year or so ago...I'd volunteer to lead a crusade against this rule...But I was never able to garner enough interest to fight this BIG ripoff policy.

Next Lesson...How to get around the "Pattern Day Trader" rule...LOL

[IIC]

I never heard of a yearly maintenance fee.

You can open an IRA, SEP, Roth, Rollover at most any brokerage. But since you cannot margin on one you also have to deal w/ unsettled funds.

To explain what unsettled funds is...I think I will give an example:

Let's say that you have $20,000 in an IRA trading account.

You buy 1000 shares of a stock today for $18,000...Say it costs you 10 bux commish.

You sell those 1000 shs next Tuesday for $19,000.

OK...You have the $2000 you never invested and the $19,000 minus $20 commish you paid on the round trip trade. Total $20,980.

You can trade the $2,000 any way you want including a day trade.

On that "unsettled" $18,980 you can buy another stock(s) with it on Tuesday after you sold whatever...BUT, you have to wait 3 days to sell it (Takes 3 days to settle the original sale on Tuesday). If you let it settle after the 3 days and don't use it to buy anything...then you can do whatever you want with it...even day trade it.

BUT WAIT...What happens if you decide to buy w/ unsettled funds on Tuesday and sell on Wednesday before they are settled??? Apparently not much...Because I've done it before and all I ever got was a BIG FAT WARNING EMAIL that if I do it again my account could be restricted. What does restricted mean? Probably different things to different brokers...Maybe, no internet trades for 90 days, no buys w/ unsettled funds for 90 days...Heck, I dunno???...But what's the worst that can happen??? They restrict you in some way...And you pull it out and go to another broker...Don't worry...You are not going to jail...You have violated Federal Reserve Regulation T and taken a "FREE RIDE"...But so what???

But I have a "SUPER" Big problem w/ this Unsettled Funds thing...Somebody is making money on this rule...And it isn't you or me...Who is REALLY getting the Free Ride??? We had a discussion about this here at Mr. M maybe a year or so ago...I'd volunteer to lead a crusade against this rule...But I was never able to garner enough interest to fight this BIG ripoff policy.

Next Lesson...How to get around the "Pattern Day Trader" rule...LOL

Different brokers have slightly different definitions from what I've seen regarding "Pattern Day Trader" rules. For example...some I've seen include options and others don't. Below is the Q and A from Scottrade which does not exactly jive with the definition at Interactive Brokers:

http://trimurl.com/3LP

SCOTTRADE:
Q. What is the definition of a "Pattern Day Trader"?

A. The NASD defines a Pattern Day Trader as "any customer who executes four or more day trades within five business days, provided the number of day trades is more than 6% of the total trades in the account during that period".

Q. Will Pattern Day Traders be required to have a margin account?

A. Yes, all Pattern Day Traders must have a margin account and will be required to maintain $25,000 equity.

Q. If I have a margin account but I don't have $25,000 equity, what are the consequences if I day trade four times in a within five business days?

A. Scottrade must issue a day trading equity call in the amount of the deficiency below $25,000 equity.

Q. What will happen if I do not meet this day trading equity call?

A. Scottrade may be forced to close your account, or revoke your margin privileges.

Q. If funds are deposited to meet a day trading equity call, how soon can the funds be withdrawn?

A. Wired funds must remain in the account for two business days. All check deposits will be held to current Scottrade policies.

Q. Will day trading be allowed in cash accounts?

A. Day trading in a cash account is generally prohibited. Day trades in a cash account can occur to the extent settled money is used and the trades do not violate the free-riding policy of the Federal Reserve Board governed under Regulation T.

Q. Does the new day trading rule apply to options?

A. Yes, it applies to all equities and options.

Q. Will an account's status as a day trader be determined from September 28, 2001 forward, or will it be based on past activity?

A. Accounts will be monitored from September 28, 2001 forward.

Q. Once an account is coded as a "Pattern Day Trader", can the account be re-coded as a non day trading account?

A. Once an account has been opened and has shown a history of day trading activity, it must remain a day trading account.

I've discussed this rule with Scottrade in the past...They say that since and IRA acount cannot be marginable, you cannot Pattern Day Trade in that type of account regardless of how much money you have in it.

But there is a way around it if you want to day trade...Simply open up multiple accounts. Although I normally day trade in a cash account w/ margin we also have 3 Tax accounts and I'm thinking about opening up a fourth after January 1st with a rollover. It won't give you unlimited day trading privileges, but you can make more.

Hopefully I have not made any mistakes above...But if I have please feel free to correct me.

Good Luck...Doug(IIC)

[Karel]

I split this thread off, from Where are you. If you have a question and you don't see and can't find an existing thread for it (hint: we have a Search function), it is perfectly acceptable, indeed preferable, to start a new thread. You can't do this when you are reading a thread, but when you step back to the forum view, you willl see the New Thread button.

Regards,

Karel

[dmk112]

Anyone know of any FREE software that does calculations on the P&L and schedule D??

[spikefader]

Anyone know of any FREE software that does calculations on the P&L and schedule D??

TradeKeeper and Dataclipper (free downloads and small fee for CD) - work well once you get your head around the software. And if that's too hard, the developer is doing Data Import Service. There's an IB filter that costs 20 bucks.

[dmk112]

TradeKeeper and Dataclipper (free downloads and small fee for CD) - work well once you get your head around the software. And if that's too hard, the developer is doing Data Import Service. There's an IB filter that costs 20 bucks.

Spike, looked into it. Is the filter required? After I use the dataclipper to import the statements it won't let me save.

[spikefader]

No I don't think it's required, but if it's not working then shoot an email to the developer and see if he'll give you the instructions without ordering the CD. It's a clunky piece of software, but once you get your head around it (instructions must help hehe) it works well .... expecially given the price. I much prefer tradelog. That is a lot easier to use, but it requires payment