Can an IRA account be a type 2 “Margin Account” or must it be a type 1 “Cash Account”?
There is no SEC law or regulation making IRA Margin Accounts illegal. There is no DOL law or regulation making IRA Margin Accounts illegal. There is no IRS law or regulation making IRA Margin Accounts illegal. In spite of this, many retail brokerage houses do not allow margin accounts for IRAs and other retirement plans. One big reason for this is that SEC staff opinions erroneously informed brokerage houses that it was illegal, per the IRS. The SEC punctuated this by prosecuting Ameritrade/Datek in 2002 with a fine in the amount of millions of dollars allegedly for this offense. It was typical bureaucratic confusion. The facts are that the Ameritrade fine was for allowing free-riding in cash accounts (not necessarily IRA accounts). The SEC had allowed their non-tax-experts to go off and publish “staff opinions” that said the IRS outlawed margin borrowing. (but they had misread the gobbledy-gook words in the IRS regs) TraderStatus.com spent about 12 months or so “battling” on a profess
