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Technology Stocks : Qualcomm Incorporated (QCOM)
QCOM 163.33-1.0%Nov 25 3:59 PM EST
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To: JMD who wrote (9680)4/6/1998 1:51:00 PM
From: Jack Bridges  Read Replies (1) of 152472
 
It has taken a while to track down someone at IRS who would talk about the use of options in IRA accounts, but here are some facts.

Sec. 32 of Pub. 590 deals with Prohibited Transactions. One is the purchase of property for present or future personal use.

Let's say that you own QCOM outside of your IRA and that you buy May 50 puts within your IRA, to hedge a possible near-term decline. What a great idea--you've used untaxed dollars to protect your after-tax position. If the puts expire worthless, it's money that you would otherwise have had to pay tax on when withdrawn, maybe at 35%. By extending the life of your after-tax position, you may be able to hold out for a 20% hit when you do sell.

If you're a raging bull, why not just tell your friendly broker to buy calls instead of stock. The leverage is tempting, and you might intend to actually buy stock as soon as you've made a fortune in options.

You be the judge as to whether this will fly upon examination, keeping in mind that the penalties for engaging in a prohibited transaction are severe and include disqualification of the entire Plan.

One way to protect yourself would be to ask the broker for a specific Code reference permitting the proposed transaction. I have done so and am awaiting reply.

JackB
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