Please ensure Javascript is enabled for purposes of website accessibility

Can You Trade on Margin in an IRA?

By Motley Fool Staff – Updated Oct 16, 2016 at 2:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Only limited types of margin activity are allowed in retirement accounts.

Tax-favored retirement accounts like IRAs can be useful in saving for long-term financial goals. However, IRAs have regulatory restrictions that prevent you from using them in the same way that you can use a regular taxable account. In particular, the use of margin in IRAs is tightly restricted, and only a certain type of limited margin is available for IRA investors. Let's go into more detail about why IRAs make it tough to trade on margin.

What margin is and why IRAs don't like it
Margin accounts are readily available in regular taxable accounts, and in fact, brokers tend to encourage them over stodgier cash-only accounts. Margin accounts allow you to borrow against the value of stocks and other investment securities in your account, and you can use borrowed cash for personal purposes or to make additional investments. Margin is a useful tool for those seeking to make leveraged investments with limited capital.

The problem with margin in IRAs is that the rules that give IRAs their tax advantages don't allow you to pledge the assets of your retirement account as collateral for a loan. Because using investment assets as collateral is the basis of the typical margin relationship, traditional margin accounts can't be IRAs. Trying to use IRA assets as collateral can put the tax-exempt status of your entire retirement account at risk, so it's typically not worth it to try to stretch the rules.

Limited margin
IRA investors can sometimes take advantage of a limited form of margin from their brokers. Technically, using a cash account prevents you from making trades until the funds from previous trades settle. This can create lag times of several days in some circumstances, and failing to respect the rules governing settlement times can produce good-faith violations.

In order to prevent these situations from arising, some brokers will let you make trades even when past trades haven't yet settled. To qualify for this treatment, you typically have to meet minimum balance requirements of as much as $25,000. You won't be able to get leverage on your IRA money, but you'll at least avoid some annoying trip-ups if you trade frequently.

IRA investors are often disappointed that they can't get the same access to margin that they enjoy in their regular taxable accounts. Because of the importance of being prudent with retirement savings, however, the discipline that stems from not having margin access in an IRA can sometimes save investors from their own worst mistakes.

For much more on IRAs, including what investment options you have available through these retirement vehicles, feel free to visit our IRA Center.

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at [email protected]. Thanks -- and Fool on!

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now


Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.