TSP and IRA Trading Limits

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.

Hmmm, that explains an issue I had with my Schwab IRA last year... sigh, oh, well :)

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Originally Posted by tsptalk

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.

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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.

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.

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Originally Posted by Intrepid_Timer

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.

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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.

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

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Originally Posted by secret squirrel

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?

Yes

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?

No. That is still just one IFT. Think of it as, every time you hit "submit" on www.tsp.gov, it counts as one.

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You would be able to go from G to S (1). Then later S to I (2). Then you get your free G-fund moves.

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.:nuts:

Secret Squirrel