Forex IRA Trading
Currency Trading Tutorial: Forex IRA Trading
Many successful Forex investors and traders enjoy the profits they are making investing in Forex. However, the main unaccounted for expense in Forex trading, or even in discount futures trading, online option trading, and stock option investing, for that matter, is paying 30-40% of one’s profits in income tax. Income tax provisions do not even cover any of the losses associated with unprofitable trades in Forex. How do we create a mechanism to shelter at least some of our precious profits that our FX trading software robots and online trading software extracted for us? The answer is Forex IRA Trading.
“IRA?” you may ask. How do you use the conservative aspects and limitations that the IRA is known for to protect any profits made from Forex? A little known fact about the IRA rules is that you and I have the ability to use an IRA to invest in non-traditional investments like Foreign Currency. It is only because most IRA custodial companies limit their clients’ investment options to stocks, mutual funds, bonds and bank CDs within their IRA accounts. Assets like collectibles and life insurance policies, are examples of investments that cannot be held within the account. The IRS specifically states that IRA custodial companies may impose their own policies that go above and beyond the IRA rules imposed by the federal government. That statement gives the custodial companies a lot of control and that’s why the vast majority of all account holders have stocks, mutual funds, bonds and bank CDs within their IRA accounts.
In truly self-directed accounts (ones with no custodial companies involved), investors are allowed to choose options like real estate, tax liens, mortgage notes, structured settlements, or anything else that is a legal option. You guessed it, Forex would be included.
Types of IRAs:
Traditional IRAs and Rollovers
Many traditional IRAs are funded with before tax dollars and earnings are allowed to grow tax deferred. Generally, withdrawals from a Traditional IRA will be charged a 10% premature distribution penalty in addition to being taxed at ordinary rates if withdrawn before age 59 ½. There are certain exceptions to this rule including death, disability, or to finance first home purchases.
Roth IRAs are funded by after tax dollars, which means you will not receive any deduction for contributions made to a Roth IRA account. Like a traditional IRA, earnings in a Roth grow tax deferred, and like a traditional IRA there is a 10% penalty if withdrawn before age 59 ½ (again certain exceptions apply). However, unlike a traditional IRA, qualified withdrawals from a Roth are tax-free. If you expect to be in a higher tax bracket when you reach retirement age, a Roth IRA may be a sound investment.
Simplified Employee Pension Plans (SEP IRAs)
SEP IRAs are designed for the self-employed and small business owners. Like a traditional IRA, all SEP earnings are tax deferred until withdrawal. A SEP IRA allows higher contributions than a traditional or Roth IRA, and because of this is potentially more beneficial for small business owners or the self-employed funding their own retirements.
Like the SEP IRA, SIMPLE IRAs are intended for the self-employed and small business owners who are not contributing to any other retirement plan. Contributions are made by both the employer and account owner and earnings grow tax deferred until withdrawn.
How do we combine the above knowledge to create Forex IRA Trading ?
A simple way is to fund a traditional IRA with some of your profits procured in Forex. There are a few ways to fund your IRA account. You can rollover funds from an old 401k or Qualified plan, transfer an existing Traditional, SEP, Simple or Roth IRA, or you can just start a new IRA with a personal contribution if you don’t currently have a retirement plan set up.
Shelter your profits from trading and investing by taking advantage of the income tax protections offered by an IRA account.
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