WHAT IS AN IRA & HOW TO OPEN ONE?
An Individual Retirement Account (IRA) enables you to save and invest more efficiently in stocks, ETFs, bonds, and more.
WHAT IS AN INDIVIDUAL RETIREMENT ACCOUNT (IRA)?
An Individual Retirement Account (IRA) is a specialized investment account that can play a crucial role in helping you save for retirement. In simple terms, it is an account specifically designed for retirement savings with potential tax benefits.
With an IRA, you can contribute money regularly up to an annual contribution limit, and that money can grow through investment options such as stocks, bonds, or mutual funds. Unlike traditional retirement plans provided by employers, an IRA gives you more control and flexibility over your investments.
tastytrade also provides the ability to trade options with an IRA. Please see the table further below to see which trading level is appropriate for you.
One significant potential advantage of an IRA is the potential for tax benefits compared to other brokerage account types.
Depending on the type of IRA you choose, you may be able to deduct your contributions from your taxable income in the year contributions are made or contribute post-tax money that grows tax-free even upon withdrawal after the qualified retirement age. This can help lower your taxable income and potentially save you money.
WHAT IS THE DIFFERENCE BETWEEN A ROTH AND TRADITIONAL IRA?
The difference between a traditional IRA and a Roth IRA comes down to how taxes are treated between the two.
For a qualified traditional IRA holder, contributions are tax deductible for the year that the income is earned up to a certain amount. That can give you an up-front tax break. The catch is that when you retire and withdrawal that money, you will have to pay taxes on that money – in a traditional IRA, potential gains year to year are not taxed, as taxation occurs upon withdrawal.
On the other hand, with a Roth IRA, you do not get a tax break for your contributions as post-tax money is contributed. Bummer, right? But here is the exciting part: when you retire and start taking money out of your Roth IRA, those withdrawals are tax-free! Yes, you read that right. Tax-free! It is like a sweet reward for patiently waiting until retirement to enjoy the fruits of your savings labor. Just like a traditional IRA, potential gains in a Roth IRA are not taxed. and can grow tax-free year to year. But unlike traditional IRAs, taxes are not owed for qualified withdrawals.
ROTH VS. TRADITIONAL IRA – WHICH IS BETTER?
The question of whether a Roth IRA or a traditional IRA is better ultimately hinges on individual circumstances and preferences. A Roth IRA may be more advantageous for those who anticipate being in a higher tax bracket during retirement and prefer tax-free withdrawals. It offers greater flexibility in accessing funds and avoids mandatory distributions, making it a suitable choice for those who value control and a potential tax-free retirement fund.
However, a traditional IRA may be more beneficial for individuals seeking immediate tax deductions since contributions are tax-deductible up to a certain amount, potentially lowering year to year tax obligations. It can be advantageous for those expecting a lower tax burden in retirement and are comfortable with eventual taxable distributions.
Evaluating your financial goals, tax considerations, and future income projections is critical in determining which type of IRA aligns better with your investing needs.
WHAT CAN I INVEST IN AND TRADE WITH AN IRA?
You have plenty of options when it comes to what you can trade in your tastytrade IRA, including stocks, bonds, and futures products. You can also trade options and trade various strategies to create a strategic approach toward your investment goals. The table below gives a breakdown of what you can and cannot trade with us.
| IRA The Works (limited margin) | Basic IRA (limited margin) | Limited / Cash* | |
|---|---|---|---|
Buy stock |  | | |
Short sell stock | - | - | - |
Buy options | | | |
Sell covered calls | | | |
Sell cash-secured puts | | | |
Defined-risk options spreads | | | - |
Sell naked puts | - | - | - |
Sell naked calls** | | - | - |
Futures^ | | - | - |
Cryptocurrencies | - | - | - |
Buy stock
Short sell stock
-
-
-
Buy options
Sell covered calls
Sell cash-secured puts
Defined-risk options spreads
-
Sell naked puts
-
-
-
Sell naked calls**
-
-
Futures^
-
-
Cryptocurrencies
-
-
-
* By default, IRAs are provisioned to have margin relief, which allows for defined-risk spread trading. However, if you wish to provision your IRA as a cash account instead, please write to accounts@tastytrade.com.
** To qualify for uncovered call writing in an IRA, you must meet the requirements for IRA The Works – our highest trading level.2
^ Your account must qualify for IRA The Works to apply for futures trading. Learn more about Small Exchange Futures products and CME futures products.
HOW CAN I OPEN AN IRA?
You can apply to open your IRA in minutes with tastytrade by following these simple steps:
1. CHOOSE AN IRA TYPE
Consider the benefits along with your specific requirements and financial goals to find an IRA that is suitable for your personal situation
2. FUND YOUR ACCOUNT
Deposit funds by rolling an employer plan into the account, transferring an existing IRA to tastytrade, or making a direct contribution
3. TAKE YOUR FIRST POSITION
Trade or invest by choosing from a wide range of markets and products such as stocks, ETFs, options, and futures
An IRA is a type of investment account that provides potential tax advantages to individuals saving for retirement. It allows individuals to contribute a certain amount of money each year, which can be invested in a variety of assets such as stocks, bonds, and mutual funds.
The contributions made to an IRA may be tax-deductible in a traditional IRA or made with post-tax money in a Roth IRA.
The investment gains within the account are either tax-deferred or tax-free, depending on the type of IRA, until withdrawals are made during retirement, at which point they may be subject to ordinary income tax.
The taxation of an IRA depends on the type of IRA you have.
In a traditional IRA, contributions may be tax-deductible, but withdrawals during retirement are taxed as regular income.
In a Roth IRA, contributions are made with post-tax money and qualified withdrawals are tax-free. There are also several other types of more specialized accounts that have their own rules around taxes.
Potential gains in traditional and Roth IRAs are not taxed year-to-year, as taxable events only take place upon withdrawal.
Like our brokerage accounts, there are no minimum deposit requirements required to open an IRA.
1 Withdrawals from a traditional IRA before the age of 59½ are subject to a 10% tax penalty, plus any tax associated with your gross income. Please consult with a licensed tax professional prior to taking any action in your IRA.
2 Withdrawals from a Roth IRA do not incur an early withdrawal penalty if it has been five years or more since the account was opened and contributed to unless the distribution did not go to the owner’s beneficiary or estate. Please consult with a licensed tax professional prior to taking any action in your IRA.
All investments involve risk of loss. Please carefully consider the risks associated with your investments and if such trading is suitable for you before deciding to trade certain products or strategies. You are solely responsible for making your investment and trading decisions and for evaluating the risks associated with your investments.