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Financial Planning / Foolish 401(k)s


Subject:  Re: 401k Plans and Options Trading Date:  12/20/2012  6:00 PM
Author:  joelcorley Number:  24971 of 26127


You wrote, I would like input on the legality of options trading in 401k plans by the Trustee. Schwab tells me margin is not permitted in 401k accounts and that limits the level of trading authorization a trustee can obtain and use. Any input on this subject would be much appreciated, and knowledge of other brokers who might not share this position, if it is legal.

I'm not aware of a rule preventing margin in a 401(k) account - only in an IRA. But I'm also not personally aware of any 401(k) providers that offer margin. Many brokers do offer limited options trading without margin in their various retirement account products. As long as the broker can ensure there is no chance exercising the option would result in a loan against other assets, they should be able to offer options in an IRA (or 401k). But just because they can doesn't mean most 401(k) providers do even that.

Also the selection of a 401(k) trustee is handled by your employer. If your employer selected Schwab, you would need some pull with their benefits group to get the 401(k) trustee changed. Of course if you are your own employer, you can always set up a Solo-401(k) wherever you want.

- Joel
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