Options in Retirement Accounts: IRAs, TFSAs, and RRSPs

Yes, you can hold some options in a US IRA and in a Canadian TFSA or RRSP, but not all of them. In general, buying listed calls and puts and writing covered calls are allowed; strategies that need borrowing, or that can lose more than the account put up, are restricted by tax law, by broker policy, or both.

In short: an IRA cannot borrow or be pledged as security, so brokers usually limit IRAs to covered calls, cash-secured puts, bought options, and sometimes defined-risk spreads. In Canada, the CRA’s qualified-investment rules allow listed options you buy, treat writing options as generally outside those rules, and warn that writing uncovered options can make the plan look like it is carrying on a business, which can make the income taxable inside the plan.

This article describes the rules as of November 2026. It covers what the tax rules permit; your broker can be stricter.

Why retirement accounts are different

Tax-sheltered accounts give up flexibility in exchange for their tax benefits. Gains inside an IRA, Roth IRA, TFSA, or RRSP are not taxed year by year, so the tax rules in how options are taxed in the US and how options are taxed in Canada mostly do not apply while the money stays inside. In return, the law limits what the account can own and how it can operate, and losses inside the account cannot be deducted.

United States: IRAs and Roth IRAs

What the tax law restricts

The Internal Revenue Code does not ban options in an IRA. The binding constraints come from three rules described in IRS Publication 590-A, Contributions to Individual Retirement Arrangements:

No pledging. “If you use a part of your traditional IRA account as security for a loan, that part is treated as a distribution and is included in your gross income.” A 10% additional tax can also apply if you are under 59 and a half.
Prohibited transactions. Borrowing money from your IRA, selling property to it, or using it as security are prohibited transactions. If you engage in one, the account can stop being an IRA.
Collectibles. IRAs cannot invest in collectibles such as art, antiques, gems, and most coins. Listed options are not collectibles, so this rule does not block them.

Because a traditional margin account is a loan arrangement secured by the account, IRAs do not get standard margin. That is the root of most IRA options restrictions.

What brokers usually allow in an IRA

Strategy	Typical IRA treatment	Why
Covered calls	Usually allowed	The shares cover the obligation
Cash-secured puts	Usually allowed	Cash covers the full purchase at the strike
Buying calls and puts	Usually allowed	Maximum loss is the premium paid
Defined-risk spreads	Often allowed, with full cash for the maximum loss	No borrowing is needed if the risk is fully funded
Naked calls	Generally not allowed	Unlimited loss would require margin
Naked puts beyond the cash	Generally not allowed	Would need borrowing

Approval tiers still apply in an IRA. They are described in options approval levels.

The IRA wash sale trap

A wash sale rule detail matters even though IRA trades are not taxed. IRS Publication 550 says a wash sale occurs if, within 30 days of selling stock at a loss in a taxable account, you “acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA,” and that in this case the disallowed loss is not added to the basis of the new position. Buying the same stock, or a call on it, in your IRA right after taking a loss in your taxable account can turn a postponed loss into a permanently lost one.

401(k) and workplace plans

Most employer plans offer a fixed menu of funds and do not allow options at all. Some offer a self-directed brokerage window; whether it permits options depends on the plan document and the provider.

Canada: TFSAs, RRSPs, and other registered plans

Canada’s rules come from the qualified investment regime. The CRA explains it in Income Tax Folio S3-F10-C1, Qualified Investments: RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs (effective May 28, 2024, the current version as of November 2026). The list of qualified investments is generally the same for all six types of plans.

Buying options: listed options generally qualify

Paragraph 1.16 of the folio says: “Except for certain derivatives, any security that is listed on a designated stock exchange … is a qualified investment,” and lists put and call options among the examples. The exception is for “futures contracts and other derivative instruments in respect of which the holder’s risk of loss may exceed the holder’s cost.” A bought option’s maximum loss is its cost, so it passes this test.

The exchange has to be a designated stock exchange, a list set by the federal Minister of Finance. As of November 2026 it includes the Montreal Exchange and many US exchanges, among them the Chicago Board Options Exchange (listed as “Chicago Board of Options”), Nasdaq, Nasdaq PHLX, the NYSE, and NYSE Arca. Not every newer US options venue appears by name, so the Department of Finance list is worth checking. The folio is clear that over-the-counter markets are not designated, so unlisted options generally do not qualify.

Writing options: not an acquisition, but watch for business income

The folio treats writing differently. Paragraph 1.40 says writing puts or calls is generally not subject to the qualified investment rules because “no property is actually acquired by the option writer at the time the option is sold besides the option premium.” The writer only takes on an obligation.

The real risk is in paragraph 1.41. The CRA’s view is that writing a covered call “does not result, in and of itself, in the plan being considered to be carrying on a business.” But writing uncovered calls or puts, alone or combined with other positions, may lead to the plan being treated as carrying on a business. Registered plans are generally taxable on business income, so frequent trading or uncovered writing can strip away the shelter the account was supposed to provide. Whether a plan is carrying on a business depends on the facts.

The folio adds three practical warnings:

Borrowing (1.42). If writing an option forces the plan to borrow to meet its obligation, that borrowing triggers adverse tax consequences.
Margin deposits (1.43). A cash margin deposit left with the broker for more than a few days is not a qualified investment.
Non-arm’s-length deals (1.44). Option transactions with a related party, or on non-commercial terms, can attract the advantage tax.

What this usually means in practice

Strategy in a TFSA or RRSP	Usual position
Buying listed calls and puts	Qualified investment
Covered calls on shares the plan holds	Allowed; not, on its own, a business per the CRA
Cash-secured puts	Commonly allowed by brokers; the CRA has not said these are, on their own, a business, and the facts matter
Spreads	Allowed by some brokers if fully paid; no margin borrowing
Uncovered (naked) writing	Generally not offered; can point toward carrying on a business
Unlisted or OTC options	Generally not qualified investments

Worked example: a covered call in a TFSA

Your TFSA holds 100 shares of Maple Widgets Inc. (a hypothetical company), now trading at $50. You write one call with a $55 strike for $1.50, receiving $150. The mechanics are in covered calls explained.

The call expires. The TFSA keeps $150 and the shares. No tax, and nothing to report.
The call is assigned. The TFSA sells the shares for $5,500 and keeps the $150. Total: $5,650, tax-free inside the plan.
Maple Widgets jumps to $70. The TFSA still receives only $5,650. The $1,500 of upside above the strike ($70 - $55 = $15 x 100) is given up. The account’s tax shelter does not change the trade’s payoff.
Maple Widgets falls to $35. The TFSA keeps $150 but the shares lost $1,500. Losses inside a TFSA cannot be claimed against gains elsewhere, and the contribution room used to buy those shares does not come back.

The last point matters for options buyers too: a $250 option that expires worthless in a TFSA is $250 of permanently used contribution room, with no deductible loss.

US versus Canada, side by side

	US IRA / Roth IRA	Canadian TFSA / RRSP
Main constraint	No borrowing or pledging	Qualified investments, plus business income risk
Bought listed options	Allowed	Qualified investments
Covered calls	Usually allowed	Allowed; not, alone, a business per the CRA
Uncovered writing	Generally not allowed	Risk of being taxed as a business
Losses inside the account	Not deductible	Not deductible

What can go wrong

Assuming tax-free means risk-free. The account shelters gains, not losses. A lost premium is gone for good, and in a TFSA so is the contribution room.
Triggering a wash sale through your IRA. The IRA purchase makes the disallowed loss permanent.
Active trading in a TFSA. The CRA has assessed TFSAs it considered to be carrying on a business. Frequent options trading is the kind of pattern that invites that question.
Leaving cash on deposit as margin. In a registered plan this can create a non-qualified investment.
Forgetting assignment. A cash-secured put assigned in a TFSA uses cash already in the account, but a spread whose short leg is assigned can leave the account with a position it cannot fund without borrowing.

The short version

Options are allowed in retirement accounts on both sides of the border, within limits. In an IRA, the ban on borrowing and pledging means brokers typically permit covered calls, cash-secured puts, bought options, and fully funded spreads, but not naked writing. In a TFSA or RRSP, listed options you buy are qualified investments, covered call writing is not on its own a business in the CRA’s view, and uncovered writing can make the plan taxable on business income. Before choosing a strategy for any account, make sure you understand what an option is and how its worst case looks.

This is general education, not tax or legal advice. Account rules and CRA and IRS positions change. For decisions about your own accounts, consult a qualified tax professional, the IRS, or the Canada Revenue Agency directly.