Trading within a SEPP-established IRA
L1: Trading within a SEPP-established IRAI have established a SEPP with Fidelity, having taken the initial distribution in Dec 2010. Distributions in 2011 will be monthly. The SEPP was established with a position in preferred shares that pay a dividend on a quarterly basis and this dividend will grow the account far in excess of the RMD. Fidelity have advised me but I just want to make sure-
1) Can I use the dividend $ to purchase other stock ?
2) Can I dispose of the preferred shares and purchase other stock
3) Is day trading allowed on a SEPP IRA ?
Thanks2011-01-08 15:25, By: Tony, IP: [18.104.22.168]
L2: Trading within a SEPP-established IRAwell good or bad I have been trading in this IRA. If the IRS was to question this I am not sure when this could happen. Does anyone have any update or opinion to my original question ?2011-03-20 15:04, By: Tony, IP: [22.214.171.124]
L3: Trading within a SEPP-established IRAGod, I hope it is ok to trade within the account as this is exactly what I have been doing!2011-03-20 15:09, By: Kaye, IP: [126.96.36.199]
L2: Trading within a SEPP-established IRAA SEPP IRA is treated just like all other IRAs – trading investments within a SEPPIRAshouldn’tbe a problem as lom=ng as the investments that you choose are allowed in an IRA.2011-03-20 15:36, By: Gfw, IP: [188.8.131.52]
L3: Trading within a SEPP-established IRATony,When you referred to “RMD”, does that mean you used the MD method to calculate the SEPP? Since the typical fixed dollar method produces an annual distribution of roughly 5% of the account balance and you said that the dividends would generate far more income than your distribution, that also suggests that you might have used the MD method which would generate less than 3% annual distribution. If you did use the MD method, that is OK with the IRS but you need a considerably higher starting balance to generate the same annual distribution as a fixed dollar method, so it is far better to use a fixed dollar method with the lower balance required after transferring the balance you do not need to another IRA account for emergency use.Or, perhaps your preferreds just have a very high yield.2011-03-20 16:15, By: Alan S., IP: [184.108.40.206]
L4: Trading within a SEPP-established IRAwell when I bought them they had a yield of over 25%, now 9% ( SFI PRE ) – so the value of the IRA has increased substantially over the balance at 12/31/09, and even over 12/31/10. I set up the 72t to avoid the 10% penalty tax and to realize some “profit”.2011-03-20 16:36, By: Tony, IP: [220.127.116.11]
L5: Trading within a SEPP-established IRA1. Sales and purchases of stocks and other securities, mutual funds, CDs, preferreds, etc. are all permitted within the SEPP 72-T. This is the same as within any IRA.
2. There is no required relationship between the annual distributions and the earnings of the investments within a SEPP 72-T, or any IRA for that matter. If the required distribution from a SEPP 72-T ( or traditional IRA) is greater than the income earned within the account(s), then the “shortfall” must come from any cash in the account, or a money market in the account, or from selling some securities. On the other hand, if the income exceeds the required distributions, then that excess can be accumulated in the account(s) for distributions in future years, reinvested in buying additional shares, or for making new investments within these same account(s).2011-03-20 17:34, By: dlzallestaxes, IP: [18.104.22.168]
L2: Trading within a SEPP-established IRATony:
Yes, as long as your buying and selling of shares remain within the IRA or IRAs that you have based your SEPP on, you can do as much of that as you wish and the custodian allows. What you can’t do is move money between a SEPP IRA and an IRA that is not part of your SEPP plan. You can have multiple mutual funds, bond funds, stocks, or bonds in your SEPP that you can buy / sell / trade. The trick is, that all of this buying and selling has to occur within the same numbered account and that this is your SEPP account.
As to “day trading”, this is generally not a good idea as it usually increases your risk and investment costs considerably. Some custodians also put limits on trading frequency to reduce fund costs. I don’t know of any IRS rule against it, though. Most financial advisors suggest that people rebalance their IRA portfolios once a year and no more than quarterly in order to avoid the stock or fund de jure problem. A well considered, diversified, and stable plan usually works better than a lot of jumping around when investing. Just my $0.02 worth. 🙂
2011-03-20 17:56, By: Ed_B, IP: [22.214.171.124]
L3: Trading within a SEPP-established IRAThanks for all the responses. I will let everyone know if I run into any IRS issues. This is a great site for information.
Rightly or wrongly I am of the opinion that day trading/ short term investing is the way to go – provided of course you have the know-how and time to be able to do so. I believe the days of long term investing should be over, even if via a mutual fund. I have seen the wide gyrations in stock prices during any trading day and for every winner there is a loser – and the losers are the people that put faith in their fund managers and their employer’s stock. Thats my 2c worth !2011-03-21 01:11, By: Tony, IP: [126.96.36.199]
L4: Trading within a SEPP-established IRAWell, Tony, in my opinion, I think that you are bravely taking on some very long odds. For every person who day trades and makes money doing it, there are no doubt dozens of people less fortunate who provide that money to the winner. Sound investing principles endure, even today. Yes, we do have considerable volatility today and an astute investor might be able to play that and do well… or he might not. I’ve done some short-term trading and made money at it but when I look back on a 40 year investing career, I find that while stocks provided the most excitement, it was the low cost mutual funds that provided the biggest returns. And that’s my $0.02 worth. Good luck, my friend, I truly do wish you great success.
Ed2011-03-21 03:12, By: Ed_B, IP: [188.8.131.52]