I accidentally made a few trades totaling about $6,000 in my Roth IRA that I intended to make in my taxable account. I realized the mistake when I got a notice from from broker asking me to deposit money in my account.

I immediately sold the shares and an equivalent amount of another stock because it's something, but the cash from those sales won't be deposited before the previous trades settle. I'd deposit the amount I owe, but my 2018 MAGI is too high to be eligible, and I owe slightly more than the contribution limit covers.

My Roth IRA is entirely invested, hence my problem. I think I'm allowed to have a negative balance on IRAs because my taxable account is a margin account (like it's a bug in the system), but I could be wrong.

My questions:

What are my options to make the brokerage happy? I'd happily pay the margin interest for three days, but I don't think that's how this works. Are there any legal concerns?

  • 6
    StackExchange is no substitute for calling your brokerage and talking to a live customer support representative. – Ben Voigt Jan 7 '19 at 16:36
  • True, but I only trust them on the part of "making the brokerage happy." They'll be less-concerned with the IRS. – user857345234 Jan 7 '19 at 16:40

IRA accounts must be cash accounts. No borrowing. No margin. No Pattern Day Trading. No short selling. And no special treatment because your taxable account is a margin account. That's a separate entity with different rules.

When you sell stock, the cash is not officially in your account until the settlement date. You can buy stock with unsettled cash, but if you sell that stock before the original trade settles, you are guilty of free riding. Your issue is that because you won't have settled cash for the trades that you made and because the sales were made after the purchase, there isn't enough cash to settle the purchases. You violated IRA rules.

The question is, what are the repercussions? If they restrict your account for a period of time, no big deal. If they have to bust your trades, you may lose commissions and possibly even worse, trade closure at a worse price.

I don't know the solution. You should get on the phone with your broker (compliance) because you're nowhere near the first person who has done this.

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  • my broker warns that in that case they do forced sales of something in the account (whatever they feel like) to cover the negative amount. If yours does that, it would be of no importance for you, as you already sold sufficiently. – Aganju Jan 7 '19 at 19:28

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