Tax Deferred Account Information for FinGro Pal Customers in the United States
Traditional IRA - Traditional Individual Retirement Accounts
Roth IRA - Roth Individual Retirement Accounts
SEP IRA - Simplified Employee Pension Individual Retirement Accounts (for business owners)
Further Information: CBOE index options offer tax advantages compared to equity options. Specifically, they are taxed as 60% long-term capital gains and 40% short-term capital gains. In general, trading activities like this in the United States are typically taxed as short-term capital gains, which are subject to the same rate as your income tax bracket. On the other hand, long-term positions qualify for long-term capital gains tax, which is often significantly lower, particularly for individuals in higher income brackets.
With index options, the taxation is split, so only a portion is taxed as short-term gains, providing a more favorable tax treatment.
Capital gains from trading index options receive a unique hybrid tax treatment. Since index options are classified as 1256 contracts, they qualify for the favorable 60/40 tax rule—60% of profits are taxed as long-term capital gains, regardless of the holding period, while 40% are taxed as short-term gains.
In contrast, equity and ETF options are taxed based on the holding period: short-term capital gains rates apply if the position is held for less than a year, and long-term rates apply if held longer. These tax rates are determined by your income level.
Because most options are short-dated products, options traders typically hold positions for less than a year, resulting in short-term taxation. However, trading index options can lead to significant tax savings, as the 60% long-term capital gains treatment applies regardless of how quickly the position is closed.
(Please note: This tax benefit does not apply to IRAs or other tax-advantaged accounts.)
Tax Deferred Account Information for FinGro Pal Customers
2024
Traditional IRA - Traditional Individual Retirement Accounts
Pros
-
Potential current year tax deduction and/or credits
Cons
-
Limited ability to contribute quickly
-
Contributions and earnings are taxed when distributed
Rules
-
No joint ownership allowed
-
Possible Saver’s Credit if income is below the threshold
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Income tax applies when contributions and earnings are distributed
-
Requires earned income – Contributions are limited to earned income or below these limits:
2024 Income Max Limitation:
- Single Filing: $146k - $161k
- Joint Filing: $230k - $240k
- Traditional IRAs can be converted to a Roth IRA
-
Annual Contribution Limit:
- $7,000 for individuals under 50
- $8,000 for individuals over 50
- Limits apply in aggregate for all Traditional and Roth IRAs
-
Timing of Contributions:
- Must be made before the individual tax filing deadline (before 4/15 of the year following the contribution year)
-
Earnings Withdrawal Rules:
- Under 59.5 years of age: penalty unless exceptions apply
-
Contribution Withdrawal Rules:
- Same penalties and restrictions as earnings withdrawals
Roth IRA - Roth Individual Retirement Accounts
Pros
-
Earnings are income tax-free in retirement
-
Contributions can be withdrawn tax-free before retirement age
Cons
-
Limited ability to contribute quickly
-
Limited to no current year tax benefits
Rules
-
No joint ownership allowed
-
No income tax deduction for contributions, but possible Saver’s Credit if income is below the threshold
-
No income tax after the age of retirement
-
Requires earned income – Contributions are limited to earned income or below these limits:
2024 Income Max Limitation:
- Single Filing: $146k - $161k
- Joint Filing: $230k - $240k
- Income above these limits allows for a “Back Door” Roth IRA conversion
- Traditional IRAs can be converted to a Roth IRA
-
Annual Contribution Limit:
- $7,000 for individuals under 50
- $8,000 for individuals over 50
- Limits apply in aggregate for all Traditional and Roth IRAs
-
Timing of Contributions:
- Must be made before the individual tax filing deadline (before 4/15 of the year following the contribution year)
-
Earnings Withdrawal Rules:
- Under 59.5 years of age: penalty unless exceptions apply
-
Contribution Withdrawal Rules:
- After 5 years: no restrictions or age requirements
-
Inheritance Complications:
- Roth IRAs are subject to required minimum distributions to the beneficiary upon inheritance
SEP IRA - Simplified Employee Pension Individual Retirement Accounts (for business owners)
Pros
-
Potential current year tax deduction and/or credits
-
Can contribute to both Roth or Traditional IRA and SEP IRA
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Contributions can be made until the extended filing deadline (not 4/15)
-
Higher contribution limits
Cons
-
Contributions and earnings are taxed when distributed
-
Must be self-employed (sole proprietor, S-corp, or partnership)
-
Contributions must be made to all employees (non-discrimination rules apply)
Rules
-
No joint ownership allowed
-
Income tax applies when contributions and earnings are distributed
-
Requires earned income – minimum earnings with an employer of $750. Contributions are limited to either 25% or 20% depending on the taxation type of the employer. Contributions cannot exceed $69,000 in 2024.
-
All contributions are made by the employer and are deductible to the employer but not taxable as compensation to the employee in the year of contribution.
2024 Income Max Limitation:
- No income limitations
- SEP IRAs can be converted to Roth IRAs
-
Annual Contribution Limit:
- Contributions cannot exceed $69,000 or 25% of W2 wages (S-corp, C-corp) or 20% of self-employed earned income (sole proprietors and partnerships)
-
Timing of Contributions:
- Must be made before the employer’s extended tax filing deadline (before 9/15 or 10/15 of the year following the contribution year)
-
Earnings Withdrawal Rules:
- Under 59.5 years of age: penalty unless exceptions apply
-
Contribution Withdrawal Rules:
- Same penalties and restrictions as earnings withdrawals
Disclaimer:
The information provided on this page is for educational purposes only and should not be considered as financial, legal, or tax advice. While we strive to offer accurate and up-to-date information, we are not accounting professionals. Tax laws and regulations vary by state and country, and it is essential to consult with your own accountant or tax advisor for personalized guidance tailored to your specific circumstances.
We do not assume any responsibility for actions taken based on this information or for any consequences resulting from not seeking professional advice. Always verify the applicable tax regulations in your state or country before making any financial decisions.
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