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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76406  
Subject: Re: Using IRA for trading Date: 2/17/2000 1:45 PM
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Gedanken: <<<<Let's say I'm young, with at least 3 decades to retirement. I've got a LTBH portfolio with consisting of strong companies I think will do well a decade from now. Now let's say I would like to invest a bit more on the "speculative" side. There are a lot of highly volatile but interesting companies I would like to take a position in, but only for the short term, as I think their long-term success isn't certain. Wouldn't it make sense to buy these companies using money from an IRA? That way I could sell them, and regardless of the time I held them, pay no capital gains taxes. It seems to me this could be a good way to quickly build up a large portfolio. Of course the strategy seems a bit contradictory since I would be focused on the short term but the money couldn't be withdrawn for the long term. This seems to especially make sense since the maximum annual contribution to an IRA is so small. At least it'd be a good way to quickly build up an IRA portfolio, and then maybe use that profit to buy shares of good solid companies. Of course I realize I could easily lose my IRA investment, but if you're young you've got time to spare. What do you guys think?>>>>

TheBadger: "In general you are right on target; I do it every day. As a general comment the two advantages most people overlook with respect to IRA's or other deferred asset accounts are:

1. They "under invest" & tend to go through a risk avoidance process with an IRA when infact; an IRA is a very long term device & is ideally suited for literally maximizing risk; as time ameloriates risk.

2. They tend to make short term investments in a taxable account and suffer the tax consequences; when infact the short term trading events are much better suited to occur inside the IRA & using LTBH strategy in taxable accounts."


Two caveats:

First, all your trading expenses need to be paid with funds inside the IRA; depending on the frequency of the trading and the size of the IRA it could be tight.

Second, as a general rule capital losses inside and IRA are not deductible and therefore do not generate a tax benefit for you like capital losses in a regular account.

Just my $0.02. Regards, JAFO



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