In the US, there is a system in place whereby retirement savings can be given certain tax advantages, provided they are held in an IRA. These three letters stand for ‘Individual Retirement Account’ and are a type of individual retirement arrangement, and just one of the many account options available to Forex traders in the US. It also gives investors the chance to avoid taxation of their trading income and save for their retirement.
There are many different rules and requirements that come with an IRA, and for the best advice on whether Forex brokers with IRA accounts are the right choice for you it is advisable to consult a reputable tax adviser. The rules and regulations were developed and introduced by the IRS and the US Treasury department, and have served to make things a little confusing. Here we will give you some of the most pertinent facts regarding such accounts, but are unable to advise you on the best course of action. This is because everyone’s situation is different.
Different types of Forex IRA accounts
Basically, there are two different types of Forex IRA account:
- Self-directed IRA account – These are controlled by the individual and are established between the investor opening the account and a broker. The individual account holder controls all the money they wish to invest. Contributions are made with pretax dollars, with the balance of the account accumulating tax-free up until they are withdrawn at retirement. This is when the taxes on any profits are paid.
- Roth IRA account – A Roth IRA account can be opened through a broker, mutual fund or bank. Contributions are made with after-tax dollars. The balance in the IRA accumulates tax-free, but no taxes will have to be paid when withdrawal of funds takes place on reaching retirement age. Investors who are planning to be in a higher tax bracket when they retire prefer to use a Roth IRA.
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How an IRA works and who manages it
IRA accounts have become very popular in the USA, and are often arranged through an employer, or investment advisor. However, many of these investors don’t understand how it works. So let’s give you all a brief overview.
- An IRA Custodian manages all IRA accounts
- Maintenance of the IRA is the responsibility of the IRA Custodian company. Also included is the handling of deposits and distributions, as well as the execution of investment decisions.
- All the relevant paperwork involving reporting requirements is handled by the IRA Custodian company.
An IRA is intended to be savings for retirement and advisors usually advise a conservative approach. However, investors can invest an IRA in almost anything, but the IRA Custodian must be willing to open an account in the market of your choice. It’s also worth mentioning that most IRA Custodians will only work with a CFTC-Registered brokerage firm. They also tend to work with Forex brokers they have worked with in the past.
The fees involved with an IRA Account
It may or may not surprise you to learn that there are fees with an IRA account. If your IRA was historically only used for investing in mutual funds you might not have noticed the fees, but they were being paid nonetheless. A type of ‘commission’ is received by the Custodian on your investment, which is often an annual fee, rather than a percentage of the investment. Other fees will also be charged, such as those for opening trading accounts along with other one-time fees.
How to set up an IRA account with a Forex broker
Each IRA Custodian will have their own steps for setting up an account, but the process can be looked at generally, in order to give you an idea of what to expect. The first step is to choose an IRA custodian who will handle the paperwork and record keeping for the IRA. Then a Forex broker with IRA accounts has to be chosen, and it will have to be one that the IRA Custodian supports. Then the Custodian receives a request from the investor to open a trading account with the broker, and adds their stamp or paperwork to the application. Funds then have to be transferred to the trading account.
Unfortunately, the process can be rather long-winded, and can take as along as a couple of months. It really depends on a person’s situation.
Here at topratedforexbrokers.com, our aim is to provide you with as much basic information as possible, regarding the world of Forex trading. We will be giving you introductions to some of the leading Forex brokers, along with some helpful reviews. Armed with all that you’ve read here you’ll be in the best position to decide what is best for you.
