Can You Day Trade Your IRA?

Day trading requires a special kind of person: one who has patience and can devote the time it takes to be successful, and who can accept losing money at times. The riskiness of day trading might not be compatible with your goals for an individual retirement account. However, if you are committed to try day trading with your IRA, you can do it -- with some restrictions and special allowances.

Type of Trustee

To day trade stocks in your IRA, you will need an IRA trustee that allows you control over the individual trades within your IRA. Most online brokerages let you trade online in real time, which is required for day trading. An online broker who provides IRA trustee services will allow you to make these trades in your IRA.


Many day traders use margin accounts. This lets them trade with money borrowed from the broker. Investing with borrowed money allows you to invest more funds and increases the potential for gains, but it also magnifies the size of losses. Borrowing money on margin could make you exceed your allowable annual contributions to your IRA, so margin trading is not available with an IRA. Since many brokers require you to have a margin account before you can short a security or invest in options, those doors may be closed in your IRA account as well. Therefore, many of the potential larger profits from day trading are not available to IRA holders.


The volatility of the stock market makes day trading very risky. Although you can make money from day trading, many investors lose money over the long run. Day trading is also a stressful, full-time job, requiring you to watch a computer screen for stocks that are moving, and to try to buy and sell at exactly the right times. If you step away for a few moments, a stock that you are trading could move downward quickly, causing large losses.


Normally, day traders face larger tax hits, as the profits are short-term capital gains. These are taxed at your normal income rates, not at the lower, long-term capital gains tax rates. Record keeping for day traders is also a challenge, because each trade must be tracked for cost and selling price to determine the taxable profits. If you are trading inside an IRA you do not have the same record-keeping requirements, as traditional IRA withdrawals are taxed at your income rate when you withdraw the money, and Roth IRA withdrawals are tax-free at retirement. You do not have to pay taxes during the year you make the trades.