Account with borrowed margin can be moved to discount broker


October 30, 1994|By SUSAN BONDY | SUSAN BONDY,Creators Syndicate

*TC Q: I have been dabbling in stocks for four years. Three months ago, I had a hunch about a stock, so I doubled up on my position by borrowing on margin. After looking at a few monthly statements, I found that I can get a much lower rate from a discount brokerage firm. My broker charges 2 1/2 percent above the broker's loan rate, and the discount firm only charges 1 percent above the same rate. In addition, the discount broker offers much lower commission rates.

I do my own research and make my own trading decisions and want to move my account to the discount broker. What do I do about my $13,000 of margin? The stock has done pretty well, so I'm ahead even after paying the margin interest. Still, I don't want to sell because I would have to pay a tax on the appreciation.

A: You don't have to pay back the borrowed margin when you change brokerage firms. The firm to which you are moving the account will pay the old firm the full margin amount and debit that amount to your new account. Of course, you

have to sign a margin agreement before the new firm can act. This is generally brought to your attention when you mention the margin balance or when the new firm tries to collect your assets and discovers you owe money.

As for your fear of paying taxes on gains, I offer these thoughts: If you wait long enough, your fear of taxes will be unwarranted because your profit will probably disappear. If you've held your stock for a year, the most Uncle Sam can take is 28 percent. That leaves you with 72 percent of the profit.

And I have never met anyone who went broke taking profits.

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