Ever since opening up my blog to guest posting, I’ve gotten a lot of articles on some new subjects. This blog is mostly about day trading, but I’ve allowed guest posters to post articles on all kinds of investing ideas.  With the addition of new subjects comes interesting new long tail searches.  Right now, I’m seeing a lot of inquiries about day trading IRAs, so I did some research on the topic to see what I could dig up.  Keep in mind, I never have, nor is it likely that I will trade my Roth IRA, so this is not from personal experience.

It seems that you can, in fact, day trade within a Roth IRA account.  You can’t exactly make a real go of it though, because you’re restricted by pattern day trading rules no matter how much money you have in that account.  As you know, when you’re labeled a pattern day trader you’re required to have a 25k minimum balance in a margin account.  The key point there being “in a margin account;” Roth IRAs are not eligible to be margin accounts.  This doesn’t mean you can’t day trade, it just means you have to stay within the rules that prevent you from being labeled as a pattern day trader (only 3 round-trip trades within a 5 day period). In addition, without a margin account, you will be subject to the T+3 settlement rule, and you won’t be able to short stocks, which is a key weapon in a day traders arsenal.

Moreover, there are tax advantages to operating in a standard trading account, including the ability to deduct losses and expenses.  I’m not sure about the losses, but I know you can’t write off brokerage fees, computers, or anything else related to your trading in a Roth IRA account because it’s a tax free account to begin with.  You do have the benefit of tax free gains by trading within such an account, though.  However, the likelihood of you actually making any gains is slim-to-none.  I know you’re bright and everything, but those are the odds, and they’re heavily stacked against you.

I think day trading with an account that is intended for retirement is a foolish pursuit, especially if you’re new.  You’re going to lose money day trading – that’s a fact, and if you lose your retirement money, you’re going to be one pissed off and broke old man.  You’d be better off learning about long-term investing, since it will be quite some time before you’re able to use this money anyway.  If you’re that interested in day trading, especially under the restriction of PDT rules, just put some money into a traditional brokerage account and start trading small sizes (100 shares or less).

Again, I am not an expert in this area by any means.  Consult a professional before making any decision to screw around with your Roth IRA.

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