Want To Be Your Own Driving Force? Active Trading in an IRA

Trading in an IRA may be a way for some people to try to manage risk and potentially increase their income stream in retirement while having some tax-deferred benefits.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Steering wheel: active trading in an IRA
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Key Takeaways

  • Active trading in an individual retirement account (IRA) is possible, but understand the potential benefits, risks, and limitations
  • While options are not for everyone, with the appropriate approval, there are strategies an option trader can use in an IRA
  • Options strategies in an IRA can potentially help continue growing your nest egg

When building a retirement portfolio that includes an individual retirement account (IRA), some investors like to have an advisor in the passenger seat to have another set of eyes on the road. They’re OK with letting the professionals map the course, speed, and risk. Other investors, especially those who trade stocks (or even futures) in other types of brokerage accounts, may prefer to keep at least one hand on the controls. 

The traditional model of asset management—the idea that investing for retirement is synonymous with long-term and slow growth—might not resonate with some investors. When markets are volatile, all it takes is a big down day to lose faith in a buy-and-hold approach. For many traders, options are now an integral part of their strategy to potentially generate income and manage risk. Taking advantage of the liberalization of retail trading, they believe they’ve found the sweet spot where flexibility and responsibility intersect—that is, where the select tax benefits of IRAs meet active asset management. However, options trading carries it own unique set of risks.

As a refresher, IRAs can be created from scratch or from a workplace 401(k) rollover. The main appeal of leveraging more sophisticated strategies in an IRA is the potential to let profitable trades rest in the account tax-deferred (usual IRA tax rules apply). That leads to the second draw: The realization that a shorter-term trading horizon can tuck into a longer-term plan for pursuing an investor’s financial future.

IRA Trading Rules

As with anything you trade, be aware of the potential benefits, risks, and limitations of trading options within an IRA before you get started. Although Uncle Sam is on the side of retirement savers, he’s not going to toss out the rule book altogether. Here are a few of the things you need to keep in mind:

  • If you incur losses in your IRA, those losses can’t be used to reduce your overall tax bill.
  • An IRA brokerage account is a cash account and never operates on margin, meaning you can’t trade with borrowed funds. That includes “short selling,” or selling a stock at one price with the intention of buying it back in the future at a lower price. You can’t sell naked calls. No short straddles or strangles either. 
  • Another no-can-do has to do with settlement. A stock trade takes two business days to settle. You can buy stock with unsettled cash, but if you sell the stock you bought before the original trade settles, you’re in violation of Regulation T. You’re guilty of “free riding,” which is trading with money that isn’t actually yours. In short, short-term trading just doesn’t work in IRAs.

Let’s Shift Gears: Tired of All the No-Can-Dos? Here’s a Can-Do

Some brokerage firms offer IRAs that can be approved to implement certain options strategies. Options can be used in an attempt to set up strategies that can help you potentially profit from rising or falling markets. For the more sophisticated trader, a handful of firms also offer the ability to trade futures in an IRA.

Qualifying to trade options and futures in an IRA requires pre-approval from your broker. Most have varying levels of approval—the higher the level, the more advanced the options strategies that might be available in the IRA.

A lot depends on your personal risk tolerance level. One starting point might include selling (writing) covered calls or cash-secured puts. From there, higher-level approval could bump you to buying call or put options. In some cases, highest-level authorization allows options spread strategies with defined risk profiles. If you think that options trading might be for you, check with your broker to see which strategies might be available for your account. You may have enough flexibility to come up with some pretty creative options strategies in your IRA where you can still aim to manage risk and potentially generate income.

As a potentially tax-advantaged way to invest, your IRA is meant to help you invest for retirement. You may want to consider sticking with strategies generally viewed to be higher-probability options trades for funds earmarked “retirement” and leave the riskiest of risk-taking for other accounts. But always remember, options trading, even in an IRA, involves significant risk and is not suitable for everyone. When you’re the one in the driver’s seat, the decisions are yours.

A long call or put options position places the entire cost of the options position at risk. Should an individual long call or long put position expire worthless, the entire cost of the position would be lost.

Spreads and other multiple-leg options strategies can entail substantial transaction costs, including multiple commissions, which may impact any potential return. 

A rollover is not your only alternative when dealing with old retirement plans. Please click here for more information on rollover alternatives.

Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement prior to trading futures products.

TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.


Key Takeaways

  • Active trading in an individual retirement account (IRA) is possible, but understand the potential benefits, risks, and limitations
  • While options are not for everyone, with the appropriate approval, there are strategies an option trader can use in an IRA
  • Options strategies in an IRA can potentially help continue growing your nest egg
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Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Margin trading increases risk of loss and includes the possibility of a forced sale if account equity drops below required levels. Margin is not available in all account types. Margin trading privileges subject to TD Ameritrade review and approval. Carefully review the Margin Handbook and the Margin Disclosure Document for more details. 


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

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