Forex in an IRA

[Trail Snail]

Hey All,

I'm fairly new here and just going through the school (which is great). I'd like to make a partial transfer of my existing IRA into an IRA account where I can trade Forex. I've done some initial research and so far it seems a little cumbersome. Forex.com offers an IRA through one of their custodial partners, and there leverage is 50:1 with a 100% margin limit. Is this typical with Forex IRAs?

Thanks.

T

[Yarcofin]

Depending on how close to retirement you are, and how much experience you have, I don't know that putting retirement funds into forex is necessarily that great of an idea...

[Trail Snail]

Originally Posted by Yarcofin

Depending on how close to retirement you are, and how much experience you have, I don't know that putting retirement funds into forex is necessarily that great of an idea...

I'm not close to retirement and I want to move only 10% from my current IRA (less than 5% of my total retirement assets). This percentage equals a dollar amount that I'm willing to risk. I believe they limit your leverage to 50:1 because of the fact it's a retirement account.

Being from Canada, you may not understand the tax benefits of trading within an IRA account in the US.

Back to my original question. Does anyone have any input as to different brokers who offer IRAs? It seems that most use the same few custodians to set up the IRAs.

[KENNETH LEE]

There is a IRA/401K admin. company called Millenium Trust, The way I understand it you deposit with them and they transfer funds to your Forex broker. I know they use GFT and FXCM. But just Goggle them and then contact them. To findout all the brokers they use, possiblly any you choose.

I have been checking into this myself as I will roll my 401K into it when I am trading fulltime. Can't do any worse then it has been latelly. LOL..

Hope this helps..

[Trail Snail]

Millenium seems to be one of the three most common. Equity Trust and Entrust Midwest are two of the others. It's quite an exercise in paperwork.

I hear you on the 401k. My company offers about 8 choices to invest in...it's painful. Fortunately, I'm doing a lot better in my IRA, although it's still not the prettiest thing I've seen.

Tim

[Andrewunknown]

Most IRA plan documents will not include a provision for portability of assets into a forex brokerage account; but it sounds like you're aware of that. Some IRA trustees may have a prototype document/custodial agreement that permit it with some kind of tack-on component. Be sure to check the list of fees that go along with this type of product - also be sure to read anything related to the Futures/FCM offering and to read the disclosure statement (if not the custodial agreement as well). Also be sure that you can't go into a debit within your IRA - this causes a host of problems. Is this a suitable investment? Millennium, for example, doesn't concern itself with that. Rolling one's entire qualified plan (e.g. 401k) or even IRA into an account where they intend to trade forex is a very bad idea, unless this is intended to comprise only the most aggressive piece of their overall portfolio asset allocation, which means they have retirement assets more conservatively invested elsewhere.

Use caution.

[pablopluto]

Im just adding this but I have heard of people getting fined by the IRS because retirement account can not be leveraged against by you. So I guess its ok if you dont leverage your account. But I dont do your taxes so check with a CPA if it is legit. Or maybe Im wrong.

[Andrewunknown]

Originally Posted by pablopluto

I have heard of people getting fined by the IRS because retirement account can not be leveraged against by you

This is not a simple topic; and definitely not one (just in case anyone gets any ideas) to decide on based off of forum postings.

General the above is correct: you'll find most IRA custodians prohibit use of margin (ask a firm representative for a reference to what article this language is found under in their agreement, if applicable) within IRAs for which they act as trustee/custodian; that is at their discretion. As for people getting fined: that's probably baseless, because a custodian has to permit use of leverage for the participant to take advantage of that option in the first place. It just depends.


Just for the sake of the discussion: look at Article III on Form 5305-A (search for it at www.irs.gov): this is the bare-bones Traditional IRA IRS model, where you'll notice no explicit reference to anything like forex. As usual with the IRS, things aren't so simple.

Two things then: first, IRS section 4975 (pursuant to 408(a)) addresses prohibited investments within IRAs; this means inclusion or exclusion of foreign exchange as an offering is ultimately based on interpretation of IRS code and regulations. Second, the IRA custodian can (and more than likely has) outline permitted investments/transactions for their IRA product in some detail by adding their own specific provisions to Form 5305-A in Article VIII and possibly an addendum article, effectively resulting in an IRA prototype (a unique variation on the plain IRS model). So, can one trade forex in an IRA? Perhaps; perhaps not.

To look into things further: any IRA prototype document must receive a favorable opinion letter before to allow the custodian to take receipt or otherwise manage assets. Checking with a tax advisor to research and review a firm's IRA documents is the best course of action: custodial agreement, disclosure statement, opinion letter(s), etc. There are highly significant adverse legal implications if a custodian is found to be out of compliance, in which participants (and their assets) can become unwittingly entangled.

Can you render a legally justifiable determination on a firm's documents? In all likelihood, no. Again, it is wise to consult a competent tax advisor for their professional take on things before signing off on any "forex IRA".

[pablopluto]

Originally Posted by Andrewunknown

This is not a simple topic; and definitely not one (just in case anyone gets any ideas) to decide on based off of forum postings.

General the above is correct: you'll find most IRA custodians prohibit use of margin (ask a firm representative for a reference to what article this language is found under in their agreement, if applicable) within IRAs for which they act as trustee/custodian; that is at their discretion. As for people getting fined: that's probably baseless, because a custodian has to permit use of leverage for the participant to take advantage of that option in the first place. It just depends.


Just for the sake of the discussion: look at Article III on Form 5305-A (search for it at www.irs.gov): this is the bare-bones Traditional IRA IRS model, where you'll notice no explicit reference to anything like forex. As usual with the IRS, things aren't so simple.

Two things then: first, IRS section 4975 (pursuant to 408(a)) addresses prohibited investments within IRAs; this means inclusion or exclusion of foreign exchange as an offering is ultimately based on interpretation of IRS code and regulations. Second, the IRA custodian can (and more than likely has) outline permitted investments/transactions for their IRA product in some detail by adding their own specific provisions to Form 5305-A in Article VIII and possibly an addendum article, effectively resulting in an IRA prototype (a unique variation on the plain IRS model). So, can one trade forex in an IRA? Perhaps; perhaps not.

To look into things further: any IRA prototype document must receive a favorable opinion letter before to allow the custodian to take receipt or otherwise manage assets. Checking with a tax advisor to research and review a firm's IRA documents is the best course of action: custodial agreement, disclosure statement, opinion letter(s), etc. There are highly significant adverse legal implications if a custodian is found to be out of compliance, in which participants (and their assets) can become unwittingly entangled.

Can you render a legally justifiable determination on a firm's documents? In all likelihood, no. Again, it is wise to consult a competent tax advisor for their professional take on things before signing off on any "forex IRA".

Thanks for putting it straight.