Can You Trade Forex in an IRA?

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Contributor, Benzinga
June 17, 2023

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While the culture of saving and investing for retirement is relatively strong in the United States, many Americans are unfamiliar with all the available options. Diversification becomes a valuable tool on a multi-decade time horizon because it can significantly amplify returns.

Holdings could include volatile assets like the currency markets. Although trading forex is not available in traditional IRAs, there are options to avoid these restrictions.

Read on to learn what they are and what to keep in mind while trading the foreign exchange market using your retirement account.

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How Does Trading Forex in an IRA Work? 

IRAs have been around for decades, and their structure has not changed much. The consistency results from regulation and the way institutions and trading platforms that offer those products are structured.

Institutions offering IRA accounts are generally banks that provide access to mutual funds, exchange-traded funds (ETFs) and other investment vehicles. Because of this, they can keep the trading account fees for their services low or offer these accounts for free. This model limits the number of available products; however, it is possible to avoid this by using a self-directed IRA (SDIRA).

An SDIRA account is a special type of retirement account that is administered by a custodian or trustee and managed by the account holder. While typical IRA accounts offer stocks, bonds, mutual funds or ETFs, SDIRA accounts expand this to various commodities, real estate, limited partnerships and the currency market.

In an SDIRA account, you can trade forex by instructing the custodian to buy foreign currency with domestic currency cash. This comes with some restrictions as some currencies have federally imposed sanctions. You may face three types of fees when operating an SDIRA account. These range from a set-up fee — a one-time fee when establishing your account — to an annual fee, a recurring yearly fee for the service and transaction fees that can add up if you’re actively trading the funds in the account.

Types of Forex IRA Accounts

Not all IRA accounts are the same, and if you’re planning to profit from currency fluctuations, you should consider the following two options to trade forex.

Self-Directed IRA

This type of IRA has an advantage over the traditional IRA as it can hold a larger number and type of assets. Although they’re administered by a custodian or forex broker (for a fee), as the name says, SDIRAs are under the account holder’s management. Therefore, they’re best suited for investors with advanced financial knowledge in particular areas such as the forex market.

Roth IRA

This type of account is a special IRA account where the money is taxed before going into the account and all future withdrawals are tax-free, which is most suitable for those who expect their marginal taxes to be higher in retirement than now. You can set an SDIRA up as a Roth IRA. However, your taxable income determines if you can contribute to a Roth SDIRA; in 2023, individuals must earn less than $153,000 and couples less than $228,000.

Advantages of Trading Forex in an IRA

While many people are well-versed in allocating their retirement savings into traditional assets like equities and bonds, they can improve their diversification by investing in the forex markets. It can be important for IRAs because saving money in those accounts restricts you from investing in alternative assets such as collectibles, which can be good for diversification purposes. Also, an SDIRA gives you more control over your retirement funds. Many individuals use financial advisers because they don’t realize that with enough financial education, they could trade markets themselves.

Foreign exchange trading can be highly profitable because those markets can be volatile. Over the years or even decades of currency exchange in a retirement account, your savings can grow exponentially, providing for a tax-free payday sometime in the future (in the Roth SDIRA case).

Disadvantages of Trading Forex in an IRA

Trading in an IRA is not for everyone as it involves speculation with funds set aside for providing financial support in retirement. In that regard, it carries a higher dose of risk, in contrast to the general premise that risk appetite lessens with age.

On top of that, forex has its own risk category that falls between stocks and cryptocurrencies. The forex market is more volatile than stocks as it trades as a ratio between the currencies, so it doesn’t tend to rise over time like stocks. It can go either way, requiring more knowledge to trade and lower risk aversion.

Top Tips for Using an IRA to Trade Forex

Consider the following tips when reviewing your IRA forex investment options:

  • Find an IRA provider that suits you the best: Exposure in the foreign exchange market is just one part of a diversified portfolio that should include other assets. Select one that offers the best value for your needs.
  • Avoid overtrading: Overtrading forex is a risky endeavor. On top of the mental constraints, fees from high trade volume could also eat into your profits.
  • Do your forex research and stick with the plan: IRA forex trading is best suited for long-term forex strategies like trend trading. This means conducting careful research and sticking with your trade ideas even if they take weeks or even months to play out. Patience is the key to trading forex.

While trading forex in a traditional IRA may not be possible, SDIRAs offer options to bypass restrictions. Trading forex in an IRA can provide advantages like diversification and higher control over retirement funds. However, it is important to use proper risk management and choose a suitable IRA provider. By carefully navigating the forex market within an IRA, investors can potentially enhance their retirement savings and achieve long-term financial goals.

Frequently Asked Questions 


How can an IRA hold foreign currency?


You can instruct the SDIRA custodian to buy foreign currency with the domestic currency cash you hold in the account. You can do this at any time, but there are restrictions regarding the foreign currency or forex pair available because of federally imposed sanctions.


Why can’t you use any IRA for FX trading?


IRA custodians have a limited product selection because they provide the service at a low cost. Holding other assets, such as foreign currency would increase their costs and nullify that business model. Forex trading is available to SDIRAs — controlled by either the individual or a professional custodian in exchange for a fee.


Is trading inside an IRA taxable?


No. Trading forex inside an IRA is not taxable regardless of the asset denomination, but for a traditional IRA account, you will pay income taxes on the eventual distribution. You might have to pay a 10% early distribution penalty if you withdraw the funds under the age of 59½.

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About Stjepan Kalinic

Forex, Equity Analysis, and Financial Education