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MLP Investments inside a 401K
Old 05-25-2007, 09:19 AM   #1
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MLP Investments inside a 401K

If you receive more than $1,000 of taxable income from MLP's in a qualified tax deferred account, you'll incur a tax on unrelated taxable income.

Does anyone know of any exceptions or other ways to get around this tax? Since most of my investable funds are in my 401K, this tax effectively eliminates investment in MLP's as an alternative.
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Old 05-25-2007, 09:32 AM   #2
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AFAIK there is no work-around unless you are willing to take the chance that UBTI won't go over the threshhold. I never found the risk to be worth it.
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Old 05-25-2007, 01:17 PM   #3
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Anyway, MLPs are ideally suited to taxable accounts as so much of the cash flow to the holder is sheltered to one degree or another.

Chosen right and bought right, these things can be great. But there does seem to be a rush to get in on them lately. On Jan 10, 2007 I bought some NSH (at that time trading as VEH). It has risen 44% since then, and I didn't think it was particularly cheap then, just a solid and slowly growing cash flow vehicle.

People are going nuts for yield.

Ha
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Old 05-25-2007, 03:28 PM   #4
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Hey Ha, can you translate the quote at the bottom of your post for me.... I have looked at it and thought about it ... and obviously am dense, since i can't figure it out.
"Sellers of volatility eat like chickens but **** like elephants."

sign me; Intrigued
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Old 05-26-2007, 05:41 PM   #5
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Quote:
Originally Posted by megacorp-firee View Post
Hey Ha, can you translate the quote at the bottom of your post for me.... I have looked at it and thought about it ... and obviously am dense, since i can't figure it out.
"Sellers of volatility eat like chickens but **** like elephants."

sign me; Intrigued
Sure. To sell volatility is to sell naked options, or to have any derivative position where you are net short. Almost every time you make a little money. Then occasionally something unexpected happens and you feel like you just ate 10 bars of Ex-lax.

This is what shot down Victor Niederhoffer some years back.

Ha
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Old 06-24-2007, 03:31 PM   #6
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There are some new mutual funds that hold MLPs that should avoid the UBTI problem. Check out "First Trust Energy Income and Growth Fund", "Kayne Anderson MLP Investment Company", and "Tortoise Energy Capital".
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Old 06-24-2007, 08:17 PM   #7
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You'd have to hold a lot to reach $1000 in UBTI. Still, I take little chance and generally just own 100 shares/tax-deferred account. I sold PAA last week (in a taxable account). The risk is no longer worth the yield. Why take ~5.4% when I can get ~5% from a money market? One advantage of owning in a tax-deferred account is that you don't have to worry about the pain of filing taxes for an MLP investment.
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Old 06-24-2007, 08:27 PM   #8
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Oh, there are some MLPs that issue stock dividends rather than cash dividends. KMP/KMR and EEP/EEQ are two pairs (KMP is cash, and KMR is stock). They're very suitable for tax-deferred accounts.
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