Hello!
I have a Roth IRA, and I contribute the maximum to this account every year ($4000 this year). I am wondering whether I can try to augment the growth of this account by buying an additional $1000-$2000 worth of equities or mutual funds on margin. In other words, can I contribute $4000 and use this to buy $6000 of securities--$4000 with cash and $2000 on margin? I realize that this strategy could lose money if the extra investments did not outperform the interest + inflation on those margin purchases, I am just wondering whether such purchases would even be allowed.
Thanks!
-Mike
Also, can I own options in a Roth IRA account?
Full Version: Margin Account OK for Roth?
I think you can, but you'd pay taxes on the 'unrelated business taxable income' generated from the debt-financed property (i.e., the leveraged margin account).
QUOTE (J Simmons @ Mar 26 2007, 04:59 PM) 
I think you can, but you'd pay taxes on the 'unrelated business taxable income' generated from the debt-financed property (i.e., the leveraged margin account).
I think not. Without doing any research, regular IRAs are not allowed either to loan or borrow money. A margin account is borrowing.
No on margin account with an IRA or Roth. You can not use an IRA or Roth to support a loan of any kind. Margin is a type on loan - ergo, no margin account. No custodian will allow an IRA/Roth to be set up as a margin account.
If you are a beginner, you should not be thinking about margin investing. Just let time be you friend an let your account organicly grow via compound growth. Especially if these assets are the major components of your assets.
Now, if you are a very experienced investor (like 10+ years) and these assets are just a modest part of your current assets... there is an alternative. You could look at ETFs -- exchange traded funds. A few of these are set up to be leveraged investments, including a few that are set up as 200% up or down on different indicies. Since you purchase ETFs as a stock, and you are not directly using leverage (your maximum at risk is the $ paid for the ETF shares), some custodians may allow these in an IRA/Roth. Just a suggestion, not a recommendation. Frankly, I don't know if custodians would allow these newer "leveraged" (either long or short) investments. If you don't understand what I mean by long/short, index, leverage, margin, or ETF - - then you clearly should not even be thinking about this approach. Let me say this another way, about 98% of all IRA/Roth holders should not be thinking about leveraged ETFs.
If you are a beginner, you should not be thinking about margin investing. Just let time be you friend an let your account organicly grow via compound growth. Especially if these assets are the major components of your assets.
Now, if you are a very experienced investor (like 10+ years) and these assets are just a modest part of your current assets... there is an alternative. You could look at ETFs -- exchange traded funds. A few of these are set up to be leveraged investments, including a few that are set up as 200% up or down on different indicies. Since you purchase ETFs as a stock, and you are not directly using leverage (your maximum at risk is the $ paid for the ETF shares), some custodians may allow these in an IRA/Roth. Just a suggestion, not a recommendation. Frankly, I don't know if custodians would allow these newer "leveraged" (either long or short) investments. If you don't understand what I mean by long/short, index, leverage, margin, or ETF - - then you clearly should not even be thinking about this approach. Let me say this another way, about 98% of all IRA/Roth holders should not be thinking about leveraged ETFs.
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