A couple in Illinois watched more than $300,000 disappear in a matter of weeks after cashing out an inherited IRA and diving into day trading, all while earning just $38,000 a year.
The wife, Liz, shared their story on “The Ramsey Show,” explaining that the losses happened during a manic episode, and her husband was later diagnosed with bipolar disorder. He had been trading from home after the birth of their baby. At first, it seemed like he was making money. Then everything unraveled.
Liz said her husband withdrew money from an inherited IRA, paid the required taxes, and then began trading aggressively. Within six weeks, about $316,000 was gone.
“It was just kind of a manic thing,” she said. “Very out of character and very upsetting.”
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Personal finance expert Dave Ramsey didn’t soften his reaction. “Seventy-eight percent of day traders lose money,” he said. “Statistically, that’s called all of them.”
At the time of the losses, the household income was $38,000. Her husband has since taken a new job, earning about $50,000.
When Liz mentioned that her husband had been “doing well” at first, Ramsey pushed back. “Don’t even ever say that again,” he said. “That’s like saying I’m at the roulette table and I hit so I’m doing well.”
The financial damage didn’t stop at the trading account. Because the IRA was inherited, the withdrawal triggered taxes before the money was even invested. The family lost both the tax shelter and the principal.
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Now the couple is left with more than $300,000 in capital losses. Their accountant told them they can only deduct $3,000 per year against ordinary income, which would take more than a century to fully use. He suggested opening a brokerage account instead of contributing to a 401(k) so they could generate taxable gains and use those gains to offset the losses.
Technically, that idea can work. But Ramsey focused on something else.
“Your husband doesn’t need to be anywhere near a brokerage account,” he said. “Manic-depressive people should not be doing trades.”
He warned that even if the tax advice made sense on paper, it ignored the emotional and psychological risk. “Your accountant may have given you good tax advice but bad mental health advice,” he said.
