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I have an IRA with a discount online brokerage company and somehow they let me overspend on my account. I bought something and I ended up paying more because the transaction went through the day after. It's not much but now I have either to sell something to cover that debit or to deposit more funds.

  • If I sell something I might have to pay transaction fees and maybe penalties for not holding on my MF/ETF long enough
  • I cannot deposit more funds because I reached the limit for the year

Now my questions are:

Is it normal for a company to let customer overspend on their accounts particularly in a Roth IRA? I honestly don't feel to incur in any other fees because of something that I would have never done intentionally (overspending).

Can this be considered an over contribution and could I get in trouble for this? Even if I didn't exceed the limit intentionally by depositing funds in excess, I still ended up buying a total amount of securities that exceed that limit.

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I just executed a trade in my IRA, with no cash to cover it. I then entered an order to sell a bit of a money market fund, but could just as easily sold a stock or anything else in the account that would settle in time. It's your responsibility to monitor your available balance.

@CQM - There's no judgment involved, margin isn't permitted inside an IRA, so negative balances have to be taken care of. Something must be sold to cover the purchase. The broker isn't liable, although in a perfect world, a pop-up would alert the buyer "you don't have $XXX available, you really want to execute this order"?

  • Hi Joe, unfortunately I can't agree with you for the following reasons (adding some more details): my transaction was scheduled for the day after and the price jumped up in the morning before it was completed. I checked the "all or nothing" option, it should have just been nothing.. Also, I work in technology and that perfect world that you describe is just one more line of code.. Some securities have a penalty for selling early that can easily exceed my overspending, I still think that they should be liable for letting my transaction go through.. – Marsellus Wallace Feb 28 '12 at 4:38
  • You added detail here that I didn't have prior. Here, you state they did not follow your order instructions. In this case it's for you to decide to go after them. Which thing exactly do you disagree with? A broker can't read your mind. I may put in a buy order, and wait to see if it executes to sell something else. I agree that 'it' can be done, I suppose if enough customers demand it, it can happen. My answer was just how the current system works, in your case there are more details and an error by the broker. You should request they reverse the trade at their expense. – JTP - Apologise to Monica Feb 28 '12 at 16:07
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You can't deposit more in the acct and IRAs are judgment proof. It's the broker's loss, from my understanding, as they need to have better systems for federal compliance.

I would like a separate opinion though.

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