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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15588
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I have an IRA account that is going to allow me to trade futures.

Resolved Question:

I have an IRA account that is going to allow me to trade futures. A friend of mine is a very experienced and successful futures trader. He is going to manage the trades in my IRA account for a % of the gain he creates in the account. Can I transfer some of the gain out of my IRA account to pay him? If so, what would be the best way to structure the transaction to limit my tax/penalty hit?
Submitted: 1 year ago.
Category: Finance
Expert:  Megan C replied 1 year ago.

Megan C :

Thank you for your question. My name is XXXXX XXXXX I will be happy to help you tonight

Megan C :

How are you doing?

Megan C :

The IRS allows you to pay investment advisory expenses to be paid directly out of the IRA account

Megan C :

So, you would not have to take funds out and pay a penalty to pay your friend the investment expense

Megan C :

However the investment advisor cannot be related to you

Customer:

The investment advisor is not related to me.

Megan C :

Okay ... you cannot have a transaction with a related party or you can disqualify the entire retirement account. But, the account can pay its own investment fees

Customer:

Wouldn't I take a tax hit of say 40% when I pull out enough to pay him?

Customer:

Also, I would have to 1099 him, right?

Megan C :

No you are not pulling money out - you are paying an investment expense. If the fee is paid directly to him from the IRA it's not a withdrawal. You are not taxed on this.

Megan C :

Also, you do not have to send him a 1099 unless you are a business. Individuals do not have to file form 1099

Customer:

I am trading the an IRA investment account - Ameritrade. Would I instruct them to write him a check for his commission fee?

Megan C :

Yes, you would do that. I assume this is a self directed IRA

Customer:

Yes, it is self directed.

Customer:

Accounting-wise I really don't need to report anything because it all comes out of my IRA account, correct?

Megan C :

Yes, so you would have them pay him the fee. The IRS allows one of two things; either pay him directly from the IRA, but the fee has to be for investment advisory fees. Either that, or you can pay him yourself and deduct the fees.

Megan C :

So, nothing shows up on your tax return if you pay him directly out of the IRA

Customer:

Sweet!!! You have been EXTREMELY helpful!!! Can I get you again if I need another question in the next few days? You were great!!

Megan C :

Yes, you can. Let me give you my direct link

Megan C :

http://www.justanswer.com/finance/expert-myvirtualcpa/

Megan C :

Go to that site, enter your question below my picture

Megan C :

And, before you leave tonight, please rate my response as "excellent"

Customer:

Will do. My friend who is trading might have a question or two for you. Thanks again!

Megan C :

Okay please do come see me again and send them my way. I appreciate it

Megan C :

The rating feature is located along the bottom of your screen. 3-5 gives me full credit for assisting

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15588
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C
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Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level