Brokerage Accounts: Types, Features, Requirements (2024)

Unlike other account types, IRAs do not allow investors access to leverage. In other words, IRAs do not have access to any margin privileges. This restriction is not exclusive to IRs at tastytrade as this is industry standard. That said, IRAs at tastytrade are provisioned as limited margin accounts, allowing suitable investors to trade multi-leg options spreads and futures products with a minimum account balance.

Before diving in, let's break down some IRA-specific lingo surrounding cash movements. In short, the IRA has specific terminology when referring to cash movements to and from an IRA account, so knowing the vocabulary will keep you in the know when you see either term used when referring to an IRA.

• Contributions = Deposits
  • Current year contribution: a deposit coded to the current tax year
  • Prior year contribution: a deposit coded for the prior tax year only allowed up to the Tax Day
• Distributions = Withdrawals
  • A qualified distribution is a withdrawal type that is not subject to tax penalties
  • A non-qualified distribution is a withdrawal type that may be subject to tax penalties
• Non-qualified account = non-IRA
• Qualified account = IRA

IRAs are subject to contribution limits. However, investors 50 or older may contribute more to their IRAs, also referred to as a "catch-up" contribution. Both Roth and traditional IRA holders can contribute up to their contribution limit by the following calendar year's tax day. For example, an investor looking to max out their Roth or traditional IRA contribution for the 2023 tax year has until Tax Day 2024 to contribute for the 2023 tax year. Make sure you correctly indicate the contribution year in the deposit slip. Contribution limits can change yearly, so please check the tastytrade Help Center for the latest contribution limits and prior-year contribution deadlines.

Lastly, tax treatment in an IRA differs from taxable accounts like an individual or joint account. So be sure to talk to a tax professional if you have questions related to your specific tax situation.

A Roth IRA is widely known as a "post-tax" retirement account since an investor makes contributions with after-tax money. Those who reach retirement age can withdraw from their account tax-free (also known as a qualified distribution). In other words, any gains in the account will grow tax-free. Moreover, investors can withdraw qualified contributions tax-free and penalty-free, even before retirement age.

Unlike traditional IRAs, a Roth IRA does not have required minimum distribution (RMD) rules. As a result, account holders can keep positions and funds in the account for as long as they want and do not have to take distributions from the account after reaching a specific retirement age. However, there are some limitations to opening a Roth IRA. For one, Roth IRAs have adjusted gross income (AGI) limits, which can impact contribution eligibility. The AGI limit may change. Please check the limit set for every year.

Like other IRAs, they also have contribution limits and deadlines. This means you can only contribute a certain amount of money to your Roth IRA account each year.

We aren’t tax advisors at tastytrade so it is important to consult with a qualified tax advisor to determine your tax status prior to opening a Roth IRA. Tax laws are dynamic and can change at both the federal and state levels. The content provided here is for informational purposes only and does not constitute tax, legal, or accounting advice.

Traditional IRAs are also known as "pre-tax" retirement accounts, as they allow investors to make tax-deductible contributions. Moreover, distributions performed over a calendar year will get taxed as income. Distributions may be subject to a 10% additional tax if the investor is under age 59½. This is known as an early distribution penalty.

When a traditional IRA holder reaches a specific age, they must initiate the required minimum distributions (RMDs) from the account. The RMD age and amount may vary year-over-year due to changes to tax rules. RMDs can be transferred to your bank account via ACH, wire*, check*, or internally transferred to an individual account. Account holders can even designate a charity. Please visit the tastytrade Help Center to learn more about RMDs processing at tastytrade.

^{*Subject to an additional fee. Please visit the tastytrade} Commissions and Fees page ^{for a complete fee schedule.}

Do you own a business, or are you self-employed? If you want to save and invest for retirement, tastytrade offers a Simplified Employee Pension Plan (SEP-IRA). One main differentiator of a SEP-IRA is that it can have a larger contribution limit when compared to a traditional or Roth IRA. SEP-IRA contribution limits use a set percentage of earnings from self-employment up to a certain dollar amount instead of a blanket limit that applies to traditional or Roth IRAs.

Please visit the tastytrade Help Center to learn about the latest contribution limit, which can vary each calendar year. Additionally, tastytrade SEP-IRA holders must initiate contributions in the calendar year for the tax year they want a contribution coded toward. For example, investors must initiate a 2023 SEP-IRA contribution before the end of the calendar year for 2023 contributions. Please visit the tastytrade Help Center to view the latest deadlines for the current tax year. As a result of the higher contribution limits afforded for SEP-IRAs, there are some limitations and conditions, which include but are not limited to:

• Contributions must come from the employer or the owner of the business
• The account holder must be self-employed or own a small business with one or more employees
• The account holder must have earned income in the calendar year from the business for the tax year they want to contribute towards
• SEP-IRAs require annual contributions for each tax year, including when the business experiences a downturn

Regardless of your financial situation, it is always best to consult a tax professional to determine how rules surrounding SEP-IRAs can generate any potential tax consequences.

A Roth conversion is when an investor converts a traditional IRA to a Roth IRA. The traditional IRA's value will generally be taxed as a distribution when fully converting to a Roth IRA. Despite getting taxed upfront, the account can then grow potentially tax-free.

At tastytrade, there is no additional cost when performing a Roth conversion, but investors need to keep in mind the potential tax implications. It's best practice to consult a tax professional beforehand. A traditional IRA will generate a Form 1099-R to account for the distribution caused by the Roth conversion. Investors can either do a full or partial conversion of a traditional IRA to a Roth IRA. Please visit the tastytrade Help Center to learn more about the Roth conversion process at tastytrade.

When exploring IRAs, you may hear the term "rollover" thrown around. A rollover is not an account type, per se. Instead, a rollover usually refers to transferring funds from an employer-sponsored retirement plan, like a 401(k), 403(b), or 457(b), to an IRA. By performing a rollover, investors can potentially avoid any tax consequences and penalties on the distribution from an employer-sponsored retirement plan. In most cases, the employer-sponsored retirement plan service provider will issue a check so you can deposit it into a traditional or Roth IRA.

Before initiating a rollover and opening a tastytrade IRA, we strongly advise checking with your employer-sponsored retirement plan service provider to see whether it was a pre-tax or post-tax retirement plan. Generally, a pre-tax retirement account will roll over into a traditional IRA, and a post-tax retirement plan into a Roth IRA.

Lastly, it's important to note that each investor's financial situation is different and that there are rules and limitations regarding rollovers. It's best to consult a tax professional to determine what type of IRA is right for you when performing a 401(k)/403(b) rollover to tastytrade.

Please visit the tastytrade Help Center to learn more about the rollover process at tastytrade.