Three [3] Must Know Technical ROTH IRA RULES



1. You can trade actively in a Roth IRA

Some physician investors may be concerned that they can’t actively trade in a Roth IRA. But there’s no rule from the IRS that says you can’t do so. So you won’t get in legal trouble if you do.

But there may be some extra fees if you trade certain kinds of investments. For example, while brokers won’t charge you if you trade in and out of stocks and most ETFs on a short-term basis, many mutual fund companies will charge you an early redemption fee if you sell the fund. This fee is usually assessed only if you’ve owned the fund for fewer than 30 days.

2. Any gains are tax-free – forever

The ability to avoid taxes on your investments is an incredible benefit. You’ll be able to escape – perfectly legally – taxes on dividends and capital gains. Not surprisingly, this superpower makes the Roth IRA very popular, but to enjoy its benefits, you must abide by a few rules.

The Roth IRA limits you to a $6,000 maximum annual contribution (for 2021), and you won’t be able to withdraw earnings from the account until retirement age (59 1/2) or later and after owning the account for at least five years. However, you can withdraw your contributions to the account without being taxed at any time, but you won’t be able to replace those contributions later.

The Roth IRA offers a number of other benefits and retirement savers should look into it.

3. You can’t use margin in an IRA

Many traders use margin in their accounts. With a margin loan, the broker extends you capital to invest beyond what you actually own. It’s a useful tool, especially if you’re trading frequently. Unfortunately, margin loans are not available in IRA accounts.

For frequent traders the ability to trade on margin is not just about magnifying your returns. It’s also about having the ability to sell a position and immediately buy another. In a cash account (like a Roth IRA), you have to wait for a transaction to settle, and that takes a couple days. In the meantime you’re unable to trade with that money even though it’s credited to your account.


4. You don’t get to deduct losses

If you’re trading in a taxable brokerage account, you’ll get a tax write-off if you make a losing investment. Some investors even make sure they’re getting the largest write-off they can using a process called tax-loss harvesting. They scoop up that benefit and then even repurchase the stock or fund later (after 30 days) if they think it’s poised to rise in the future.

But if you’re trading in a Roth IRA, you won’t get the ability to write off losses. Changes to the tax code in 2017 eliminated the ability to claim any benefit from losses in an IRA account.



What is a Roth IRA? | Meridian Financial Partners


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