First, let’s answer a question many of you will be asking. What exactly is an IRA? IRA stands for Individual Retirement Account, and is one option for investors in the USA that provides the opportunity to save for retirement as well as avoid having to pay taxes on any trading income. Sounds like a pretty good idea, we have to say; and the fact it gives you a chance to avoid paying those dreaded taxes makes it even more attractive. But let’s look at the concept in a little more detail.
What is an IRA?
An IRA is a retirement account that has the added benefit of deferred taxation. An individual who chooses an IRA sets aside a certain amount every year with tax-deferred earnings until they reach retirement age or later. It is a particularly good option for those who don’t already have a retirement plan, providing certain income guidelines are met. There are a number of different rules and requirements, and the best place to start is by getting some advice from a reputable tax advisor, as they are best suited to help you decided whether Forex brokers with IRA accounts are the right option for you. The rules and regulations can be a little confusing, which is why we advise you to get some expert advice. We are able to give you some of the most important details here, but are unable to advise as to whether it is the right course of action, because everyone’s personal situation is different.
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The different types of Forex IRA account
There are a number of different options if you’re considering an IRA account, but basically, they fall into one of two categories:
Self-directed IRA account
This type of Forex IRA account is under the control of an individual, and established between a broker offering IRA accounts and an investor. The individual account holder is in charge of all the money invested. Pre-tax dollars are used as contributions, and the balance of the account is allowed to accumulate tax-free until it is withdrawn upon retirement, at which time the taxes on any profits will be paid.
Roth IRA account
This type of IRA account is opened with a broker, bank, or mutual fund. The difference with this account is that contributions are made with after-tax dollars, and so when the tax-free balance of the account is withdrawn upon retirement no further taxes will have to be paid. This option is better for those who will be in a higher tax bracket upon retirement.
How does an IRA account work?
In the USA, IRA accounts have become a very popular way for people to save for their retirement. It is generally arranged via an employer or investment advisor. There are also a number of Forex brokers offering IRA accounts for individual traders, but it’s possible that many considering such an option aren’t fully aware of what it entails. It’s time then to give all of you a brief explanation as to how it all works, as only then will you be able to make an informed decision.
The management of all IRA accounts is the responsibility of an IRA custodian. The maintenance of the IRA is the responsibility of the IRA custodian company. This includes the handling of deposits and distributions and execution of the investments. Any paperwork revolving around reporting requirements is also handled by the IRA custodian company.
It is possible to invest an IRA in almost anything, but as this is meant to be a form of saving for retirement it is advisable to take a conservative approach. The IRA custodian has to be in agreement with the chosen investment, and will usually only work with US-regulated brokerage firms.
Are there any fees that will have to be paid?
Obviously, it’s not going to be free, and there will be a cost involved, but it shouldn’t be too expensive. Of course, it is going to differ from broker to broker, but as a general rule, there will often be a quarterly or annual fee, along with a monthly commission that is paid to the custodian of the investment. There may also be a number of other charges; for example when a trading account is opened, as well as other one-off fees.
Is it easy to open an IRA account with a Forex broker?
Every Forex broker will have their own procedure for setting up an IRA account, but that doesn’t stop us from looking at the process in a general way, as this will give you a good idea of what to expect. The first step, however, will be to find an IRA custodian, as this person is going to be handling all the paperwork and record-keeping for the IRA. Once you’ve got a custodian sorted you can set about looking for a Forex broker offering IRA accounts; but do remember it will have to be one the custodian is willing to work with. The custodian is then sent a request by the investor to open a trading account, and adds their stamp or paperwork to the application. The trading account will then have to be funded.
It is a long-winded process, and can take as long as a couple of months, depending on a person’s situation.
So there you have it: Some background information for those of you who might be considering opening an IRA account with a Forex broker. Whether it is the right option for you, only you can decide; but as we’ve said before we would advise you to get some expert advice.
Our aim is to provide you with as much information as possible, as there are a number of important decisions you’ll have to make as part of your Forex trading experience. Stay with us, and keep popping back if you find yourself in need of a little extra help, or want something explained in a little bit more detail.
