PLAN STRATEGIES FOR TRADERS
Whether you want to trade in your retirement plan, build it up
with annual tax-deductible contributions, borrow money from it to
start a trading business, convert it to a Roth IRA for permanent
tax-free build-up or take early withdrawals with fewer tax
pitfalls, we can help you accomplish your goals.
January 2014 major strategy update: Based on new
IRS guidance on self-employment expenses for trading businesses,
we've revised our entity and retirement plan strategies.
Two-spouse general partnerships may want the active trader spouse
to own a minority percentage in order to maximize the retirement
plan deduction in relation to the administration fee needed.
(Previously, it didn't matter if the active trader spouse owned a
large majority.) We also recommend S-Corps using payroll and
entity-level retirement plans and adding a C-Corp to the mix for
employee-benefit plans including retirement plans. In both those
cases, ownership percentages don't matter. Read our Jan. 14, 2014
IRS guidance on SE tax deductions affects partnership
Generally, the best retirement plan choice for business
traders is an Individual 401(k) plan.
It combines a 100% AGI-deductible "elective deferral" contribution
of $17,500 (for 2013) with a 20% AGI-deductible profit sharing
plan contribution. There is also a "catch up provision" of $5,500
for taxpayers age 50 and over. As a "qualified plan," an
Individual 401(k) allows plan loans, whereas an IRA does not. Many
leading brokers offer Individual 401(k) plans on a cookie-cutter
basis (which means "free" to you) and they allow active
direct-access trading. Stay clear of trying to open a margin
account for securities trading, as that can trigger a prohibited
transaction problem. Learn more about the Individual 401(k) plan
and how it compares to other choices in our Trader
Tax Center and Green's
2014 Trader Tax Guide (Chapter 8). You can save $2,000 to
$17,000 or more, so it pays to educate yourself.
Learn the DOs and DON’Ts of using IRAs and other
retirement plans in trading activities and alternative
(July 24, 2013) and Webinar
recording (July 30, 2013). We've been warning our clients to
watch out for self-dealing issues since 2000.
- Alert! Many traders may be triggering IRS
excise-tax penalties for prohibited transactions including
self-dealing and/or UBIT taxes by using their IRAs and other
retirement funds to finance their trading activities and
alternative investments. One example of this type of
trouble may be the IRA-owned LLC or trust trading account.
In many cases, traders also risk losing tax-exempt status on
their retirement plans. This content is a serious warning to
stay clear of trouble — not just a technical discussion of
Roth IRA conversions (see Webinars
at year-end 2012). At year-end 2012, we recommended a Roth IRA
conversion for taxpayers in the top individual tax bracket to
report conversion income at lower Bush-era tax rates of 35%,
before top tax rates moved up to 39.6% (or 44% when you factor in
the Medicare surtax on unearned income) in 2013. Roth IRA
conversions are also good for taxpayers during a low income or
negative income year.
Watch our videos
on retirement plans produced by MoneyShow.com:
In prior content (July 2009), we recommended
working with intermediary administration firms to form an
Individual 401(k) plan if your broker didn't offer one.
Intermediary administration firms use a trust account to open with
a broker. The trust, a disregarded entity, was owned by the
Individual 401(k). We've heard recent reports that some
intermediary administration firms have gone overboard using trust
accounts inappropriately. We advise against getting involved with
IRA-owned LLCs and trusts used for margin accounts on securities.
Consider a retirement-plan consultation with
Robert Green, CPA or our employee benefit and retirement plan
GreenTraderTax offers numerous educational resources and
consulting services to traders on setting up and utilizing
existing retirement plans in a tax-advantaged manner. Whether you
* actively trade (securities, futures or forex) and/or make
alternative investments directly within your retirement plans;
* avoid prohibited transactions including self-dealing and UBIT
* build up your retirement funds with high annual tax-deductible
* borrow up to $50,000 from a qualified plan (note: IRAs do not
qualify) to help start a trading business entity with trader tax
status (or for any other reason);
* convert your traditional IRA or qualified plan to a Roth IRA or
Individual 401(k) Roth for permanent tax-free build-up (the income
threshold was removed in 2010, and for all later years);
* take early withdrawals with fewer tax pitfalls (no 10% excise
tax on substantially equal periodic payments);
* consider more innovative structures like ROBS as discussed in
our July 2013 blog;
* avoid IRA-Owned LLCs and margined trust accounts;
we can help you accomplish your goals.
There are many nuances, complexities and tax pitfalls (excise
taxes on prohibited transactions and more) with retirement plans,
and it’s even more nuanced when you factor in special tax matters
(such as trader tax status) for business traders vs. investors. As
a leading CPA firm for traders, we provide many different
strategies for using retirement plan assets efficiently, and you
will be pleased! Retirement plan trading doesn't count toward
trader tax status qualification.
We help you in a variety of ways with the retirement plan
options, features (such as loan provisions), IRS and other DOL
& ERISA rules and compliance, trader tax status, entities,
tax-deductible retirement-plan contribution options, Roth
conversions and much more. Consult with us to determine your
individual retirement plan options and on plan set up as well. We
also prepare annual tax Form 5500s when needed, and form
your entities and prepare
your annual income tax returns as you like.
If you have any questions on retirement plans, email us at firstname.lastname@example.org
or call us.