Trading Options in Roth IRAs

For related reading, see: By paying taxes on their contributions today, investors can avoid paying taxes on capital gains in the future — a good move if they think their taxes are likely to be higher after they retire. He became a member of the Society of Professional Journalists in Plaehn has a bachelor's degree in mathematics from the U. When you buy a call, you have the right, but not the obligation to purchase shares of the option's underlying stock at the contract's strike price on or before its expiration day.

Roth IRAs must still follow many of the same rules as traditional IRAs, however, including restrictions on withdrawals and limitations on types of securities and trading strategies. In this article, we’ll take a look at the use of options in Roth IRAs and some important considerations for investors to keep in mind.

Cash Account Rules

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Why Use Options?

As you save for retirement or some other purpose, you can use call options in your Roth IRA. Before you buy calls, however, you'll need to make sure you're with a brokerage that allows its customers to trade options and will provide you approval for the privilege. In a Roth IRA, you invest post-tax dollars now and receive no current tax deduction – but you can then withdraw funds tax-free during your retirement years. If you meet the qualifications for this account type, Roth IRAs let your invested funds compound tax-free, which can save you a bundle over the long run. You can sell cash secured puts in your IRA if you have approval for that level of options trading from your broker and you have enough cash in your account to buy the requisite amount of the underlying security ( shares per option) if your puts are assigned.