I received a note from my brokerage saying this regarding my Roth IRA:
"According to IRS rules and based on our records, your margin trading activity generated unrelated debt-financed income (UDFI). This UDFI income is taxable to the IRA in 2024 notwithstanding the tax-exempt status of an IRA.
As the custodian of your IRA, Interactive Brokers will prepare IRS Form 990-T on the IRA’s behalf to report such income and pay the resulting federal income tax owed.
Interactive Brokers has estimated that your IRA will owe USD 19 in taxes to the IRS.
After the end of 2024 and before April 15, 2025, we will pay the tax liability using funds from within your IRA account. For this reason, the amount of USD 19 has been frozen in your account. The remainder of your account has not been impacted."
I believe this may relate to when I sold an ETF and immediately bought an equivalent amount of another ETF the same day. I had enabled margin on the account in order to do a quick sell>buy like this without having to stay out of the market for 2 days. I guess the first ETF sale hadn't settled so the purchase of the second was on margin (and maybe made profit before the first settled? Or received dividend?). But I'd never heard of this... I figured anything in a Roth was exempt from tax.
All I really want to know is:
1) What is this and how does it work? Is it a problem in any way?
2) Based on what they say, is there anything that *I* need to do in my tax return, or is it all being taken care of by them (it seems)?
"According to IRS rules and based on our records, your margin trading activity generated unrelated debt-financed income (UDFI). This UDFI income is taxable to the IRA in 2024 notwithstanding the tax-exempt status of an IRA.
As the custodian of your IRA, Interactive Brokers will prepare IRS Form 990-T on the IRA’s behalf to report such income and pay the resulting federal income tax owed.
Interactive Brokers has estimated that your IRA will owe USD 19 in taxes to the IRS.
After the end of 2024 and before April 15, 2025, we will pay the tax liability using funds from within your IRA account. For this reason, the amount of USD 19 has been frozen in your account. The remainder of your account has not been impacted."
I believe this may relate to when I sold an ETF and immediately bought an equivalent amount of another ETF the same day. I had enabled margin on the account in order to do a quick sell>buy like this without having to stay out of the market for 2 days. I guess the first ETF sale hadn't settled so the purchase of the second was on margin (and maybe made profit before the first settled? Or received dividend?). But I'd never heard of this... I figured anything in a Roth was exempt from tax.
All I really want to know is:
1) What is this and how does it work? Is it a problem in any way?
2) Based on what they say, is there anything that *I* need to do in my tax return, or is it all being taken care of by them (it seems)?
Statistics: Posted by occambogle — Fri Jul 05, 2024 3:58 am