Will the consolidated statement reflect the tax basis choices of client accounts?

Overview: 

Clients have the ability to select one of three tax basis methods, First in First Out (FIFO), Last in First Out (LIFO) and Max Losses.  The method selected will affect the P&L values which are posted on the statements.

In an advisor structure, where the advisor has the ability to create a consolidated statement, those P&L values posted will properly reflect the tax basis choice as these calculations are done independent of how a statement may be viewed.

IRA: Roth Conversions

Background: 


Traditional and SEP IRA owners may process a full conversion of cash or securities into a Roth IRA that has identical trading capabilities at Interactive Brokers.

An IRA Roth Conversion is a transfer of Traditional, SEP, or SIMPLE IRA assets into a Roth IRA as a rollover or conversion.

While Interactive Brokers is unable to re-designate a Traditional or SEP IRA as a Roth IRA (e.g. change the same Traditional IRA into a Roth IRA), you may still complete a Roth conversion without sending funds to another brokerage firm.  See below for methods to convert your IRA funds into a Roth IRA.  

Converting Your Funds

Internal Full Conversion Between IB Accounts

Conversion By Rollover Deposit

Conversion By Transfer

IRS Tax Reporting

Click Conversions and Recharacterizations for additional information.

 

Converting Your Funds

The IRS permits eligible IRA owners to contribute funds to a Roth IRA from a Traditional or SEP IRA.  Regardless of the conversion method used, the entire transaction is treated as a conversion.  There are three (3) conversion methods available for converting into an IB Roth IRA account:

(1) Internal Full Conversion (Cash & Securities)

(2) Rollover Deposit (Cash only)

(3) Trustee-to-Trustee Transfer (Cash only)

  1. Internal Full Conversion:  You may open a Roth IRA at IB and then request a Full (all assets) conversion of a Traditional or SEP IRA through Account Management.  All assets will be internally transferred  into the Roth IRA.  Internally processed Roth conversions submitted by 8:00 PM EST are processed the next business day.

[In Funds Management of the Traditional or SEP IRA, choose: IRA Conversion to Roth Account. Or, click  Position Transfers, then select IRA Conversion - Transfer Assets to Roth Account.]

Note: Select the funding option IRA Conversion or Re-characterization in the Funding section of the account application to perform a full conversion.  For step-by-step instructions, click here.  See Partial IRA Conversions to perform a partial conversion.

  1. Rollover Deposit:  You can receive a distribution from an IRA (Traditional, SEP, or SIMPLE) or qualified plan held outside of Interactive Brokers and roll the funds over (contribute it) to a Roth IRA within 60 days after the distribution.

[In Funds Management of the Roth IRA, choose the following deposit method: Cash Transfers.  In the Transaction List, select Deposit Cash.  In the Method List, select  Check, Wire, Automated Clearing House (A.C.H.), or Direct Rollover. Choose Rollover as the IRA Deposit Type.]

Note: Selecting Rollover designates the deposit as a "conversion contribution," provided funds originate from an IRA or qualified plan.  Select Cash Deposit instructions for step-by-step deposit instructions.

  1. Trustee-to-Trustee Transfer:  You can direct the trustee of an IRA (Traditional, SEP, or SIMPLE) or qualified plan held outside of Interactive Brokers to transfer a cash amount into the Roth IRA account at IB.  Use the IRA Transfer-In Authorization form to initiate your request.

[In Funds Management of the Roth IRA, choose the following deposit method: Cash Transfers.  In the Transaction List, select Deposit Cash.  In the Method List, select  Trustee-to-Trustee.]

Important Note: IB is not responsible for the tax reporting of any funds distributed from the Traditional or SEP  IRA held at another firm.  Customers should speak with a tax advisor before requesting an IRA distribution as withholding tax may apply.  Customers must contact the other firm to ensure that the IRA distribution is appropriately designated. 

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IRS Tax Reporting

The deposit of funds into the Roth IRA is treated by the IRS as a rollover contribution, regardless of the conversion method, and reported to the IRS on Form 5498.  Form 5498 is available by May 31 for the prior year's contributions.

The disbursement of funds from the Traditional or SEP IRA is treated by the IRS as a distribution and reported by IB on the Form 1099-R (report of the distribution).  This tax form is available by January 31 for the prior year's distributions.

For additional information on Forms 5498 and 1099-R, see US Year End Tax Forms.

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Click here to return to the Retirement Account Resource page.

Disclaimer:  IB does not provide tax advice. These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any international, federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. We recommend that you consult a qualified tax adviser.


Glossary terms: 

What is the meaning of Mark-to-Market and First In, First Out?

Overview: 

Mark-to-Market (MTM) refers to the method of calculating values for positions based on daily movements of the position calculated against the closing or settlement price of the product for that day.  At the end of each business day, the open positions carried in an account are credited or debited funds based on the settlement price of the open positions that day. 

First In, First Out (FIFO) is the practice of using the first initiated position in a security as the trade that is paired off against the most recent closing trade in that same security.  This method is often used for tax accounting purposes.  In other words, it is the method of valuing securities which uses the oldest items in inventory first.

What is the Mark-to-Market calculation method and how does it work?

Overview: 

Mark-to-market (MTM) is a method of valuing positions and determining profit and loss which is used by IB for TWS and statement reporting purposes. Under MTM, positions are valued in the Market Value section of the TWS Account Window based upon the price which they would currently realize in the open market.  Positions are also valued using the MTM method for statement purposes and it is one of the methods by which profit or loss is computed.  Other methods available include First In, First Out (FIFO), Last In, First Out (LIFO), and Maximum Loss. 

MTM P&L shows how much profit or loss was made over the statement period, regardless of whether positions are open or closed and with no requirement that closing transactions be matched to an opening transaction. The MTM methodology rather assumes that all open positions and transactions are settled at the end of each day and new positions are opened the next day. For purposes of simplification, MTM calculations are split into two calculations: 1) calculations for transactions which took place during the statement period, referred to as Transaction MTM on the statement; and 2) calculations for positions which were open prior to the start of the period, referred to as Prior Period MTM on the statement.

Background: 

For example, assume 100 shares of hypothetical stock XYZ are purchased at $50.00 on Day 1; another 200 shares are purchased on Day 2 at $52.00; 200 shares are sold on Day 3 at $53.00 and another 100 on Day 4 at $53.50.  Also assume that the closing prices for XYZ on Days 1, 2, 3 and 4 are $50.50, $51.50, $54.00 and $54.00, respectively. The MTM statement calculations for each day are as follows:

Day 1

Transaction MTM  - $50.00  ((50.50 – 50.00) * 100 )

Prior Period MTM  -   $0.00

 Total MTM  -           $50.00

 

Day 2

Transaction MTM  - ($100.00)  ((51.50 – 52.00) * 200 )

Prior Period MTM  -  $100.00   ((51.50 – 50.50) * 100 )

 Total MTM  -                $0.00

 

Day 3

Transaction MTM  - ($200.00)  ((54.00 – 53.00) * -200 )

Prior Period MTM  -  $750.00   ((54.00 – 51.50) * 300 )

 Total MTM  -            $550.00

 

Day 4

Transaction MTM  -  ($50.00)  ((53.50 – 54.00) * 100 )

Prior Period MTM  -     $0.00   ((54.00 – 54.00) * 100 )

 Total MTM  -            ($50.00)

 

Total - $550.00

 

IMPORTANT NOTICE

Account holders should note that profit and loss calculations are calculated for statement reporting purposes solely and should consult with their tax advisor regarding their obligations with respect to reporting gains and losses for tax reporting purposes.

Are non-US residents subject to withholding for tax purposes?

Overview: 

 

Information relating to tax obligations is reported as required to the tax authorities within your country of residence as well as other countries if trading products subject to any local withholding requirements.  Unless specifically directed by a taxing authority, IB does not withhold taxes on proceeds from security sales. We are required by US tax law, for example, to withhold US taxes on dividends paid by US corporations to foreign persons at a rate of 30%. This rate may be lower if the US has entered into a tax treaty with your country. In addition, investment interest income is not subject to US withholding. All withholdings for non-US persons and most entities will be reported on Form 1042-S at the close of each year. For further information refer to IRS publication 901 and/or your tax advisor.

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