Hmmm, that explains an issue I had with my Schwab IRA last year... sigh, oh, well
By now, most of us know all about the trading limits in the Thrift Savings Plan. Just in case, here is a quick reminder:
In the TSP we get 2 Interfund Transfers (IFT) per month. After you've made 2 IFT's you can still move money into the G-fund, all at once or in small increments, as long as the IFT does not increase the allocation percentage of any other fund other than the G-fund.
IRA's are different. You basically have the opposite problem.
Most (if not all) IRA's do not allow margin accounts. Because of this there is a restriction put in place by the SEC that prohibits "free ride" trades.
Most transactions done with a broker require a 3-day settlement period. That means after you buy or sell a stock, ETF, fund, etc., the transaction does not settle for 3 days. Here is how that affects you:
If you buy stock ABC on Monday morning then sell it on Tuesday, you can actually buy another stock (XYZ) on that same day with the money obtained by selling ABC, but you cannot sell XYZ until Friday, when the sale of ABC will be settled. Otherwise you bought and sold a stock with money that was not in your account, hence the "free ride." This is a violation.
Your brokerage would usually give you a warning, but after 2 or 3 violations your IRA account can be suspended.
So, the TSP limits our buying but allows us to sell (G-fund IFT's) as often as we want.
In an IRA we can buy anytime you have money available, but your account can be suspended if you sell an investment that was bought with the proceeds of a sale that had not yet settled.
I hope this helps.
Last edited by tsptalk; 03-28-2011 at 02:50 PM.
Tom
Market Commentary | My Blog | TSP Talk Plus | |
I am not a Registered Investment Advisor and this is not investment advice. Please do your own due diligence.
Hmmm, that explains an issue I had with my Schwab IRA last year... sigh, oh, well
Rules:
- Trade what you see, not what you believe
- Don't put stuff in your signature that a Mod doesn't like
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Tom, I don't think this scenario will work. You didn't hold the original purchase of ABC for 3 days so when you sell it, those original funds you used to purchase ABC would not be settled yet, so you wouldn't be able to use those funds for another purchase until those funds settled.
If you had held your original purchase for 3 days or more, you could then sell them and use those funds to purchase shares of another ETF on the same day. You would then have to hold those shares for at least 3 days. If you sold them prior to that, that would be a "free ride".
It takes 3 days to settle any transaction.
Last edited by tsptalk; 03-28-2011 at 02:49 PM.
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If you utilize a broker to trade you may be able to use same day substitutions as a way around the waiting period. I just enjoy the danger inherent in my margin account - but there sure are merits.
That is what I was trying to say. Maybe my example is confusing, but it does work in my case:
I use Scottrade and as long as you sell on the settlement date you are OK. So if you sell on Tuesday, Friday would be the settlement date. I have not had a problem with that.
The only time I had a problem was during a holiday week when the market was open and banks were closed. You have to watch for that because the bank holiday does not count as a business day and it adds a day to your settlement date, despite the market being open.
Tom
Market Commentary | My Blog | TSP Talk Plus | |
I am not a Registered Investment Advisor and this is not investment advice. Please do your own due diligence.
Please confirm if I am understanding the 2 IFTs per month.
Right now I have all money in G, when April 1st gets here I get 2 transfers out. If I move money from the G to S, that counts as one. Correct?
But, on April 1st, if I move money to S and I, then that counts as my 2 transfers for the month. Then all i can do for the rest of the month is move money back to the G. Correct?
Is this why most of you move 100% of your money into one fund? That way you have used just one IFT.
Thanks.
Secret Squirrel
Tom
Market Commentary | My Blog | TSP Talk Plus | |
I am not a Registered Investment Advisor and this is not investment advice. Please do your own due diligence.
On April 1st you can move money to all three stock funds and it only counts as one IFT. You can then make another IFT within the funds, anything after that you are disqualified, except to the G fund.
Birchtree and TSP Talk, thank you for clarifying IFT transfers for me. I have it now.
Secret Squirrel
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