Options and futures question

[Fermion]

I played around with options and Roths awhile back.

I split a traditional IRA into several Roths via conversions, then set up purchases of put and call options on some volatile stocks (I think at the time Netflix, Amazon, Apple and a few others). I recharacterized the losers and kept the huge gainers, thus paying minimal tax on the conversion and ending up with a big Roth. It had a lot of risk but I ended up with something like a $20,000 taxable conversion and a $45,000 Roth, but I lost about $1,000 in pre tax money overall.

I don't know if the above made a lot of sense now that I read it, but it was like this:

$60,000 traditional IRA, 0 basis
split into 6 Roth conversions, $10k each
two won, with wins of $25k and $20k
four lost, with total losses of $26,000 ($14,000 back into traditional after recharacterizing all four)

So I ended up with a Roth with $45k in it, $14k in a traditional, and $20k taxable conversion instead of $45k. At our 33% bracket, I saved a bit over $8,000 in taxes vs converting straight up $45k (but since I lost $1k of the original $60k, I guess I only "saved" about $7,000.)

Too messy IMO.

[dallas27]

Quote:

Originally Posted by soupcxan This is self-dealing and is clearly illegal in an IRA.

I've read a number of different pages on "self-dealing", and can't seem to find any definition that would put this in that category. They all point to making a deal that will screw over a client for your own benefit.


one example :
self-dealing
NOUN

1. the benefiting or attempting to benefit from a financial transaction carried out on behalf of somebody else

I also read through this, but a bit deep for me:
http://www.irs.gov/pub/irs-tege/eotopicq85.pdf

[soupcxan]

Quote:

Originally Posted by dallas27 I've read a number of different pages on "self-dealing", and can't seem to find any definition that would put this in that category. They all point to making a deal that will screw over a client for your own benefit.

Your IRAs can't buy or sell assets from you or your family members.

https://www.trustetc.com/self-direct...ed-individuals

Retirement Plan Investments FAQs

[gauss]

To get around self-dealing, margin, other things that can get an IRA invalidated, how about you use ETFs that are mirrors (ie long/short) of each other? Or maybe you could find an ETF that implements you desired option strategies.

It may not be perfect but it may have much lower legal risk.

-gauss