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MLP's in IRA's - Yikes!!
Old 11-14-2015, 12:34 PM   #1
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MLP's in IRA's - Yikes!!

" received a surprise tax bill for $24,321. It was for units of a master limited partnership affiliated with Kinder Morgan Inc. that Mr. Goldston held in his Roth individual retirement account. The total included nearly $6,000 of late-filing penalties and interest."

"The unexpected bills are painful reminders that even widely held investments such as MLPs can contain tax traps"

"When owners use IRA funds to invest in partnerships, as opposed to stocks, bonds and funds, they owe tax on certain annual income from the partnership exceeding $1,000 because of an antiabuse provision. This levy is known as Unrelated Business Income Tax, or UBIT, and its top rate of 39.6% can take effect at about $12,000 of taxable income."

Thousands Hit With Surprise Tax Bill on Income in IRAs - WSJ
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Old 11-14-2015, 12:51 PM   #2
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It's important to stay under the $1000 UBIT limit. The article did not mention the size of the Kinder Morgan investment that would reach that $1000 level.
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Old 11-14-2015, 02:02 PM   #3
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Quote:
Originally Posted by gerntz View Post
" received a surprise tax bill for $24,321. It was for units of a master limited partnership affiliated with Kinder Morgan Inc. that Mr. Goldston held in his Roth individual retirement account. The total included nearly $6,000 of late-filing penalties and interest."

"The unexpected bills are painful reminders that even widely held investments such as MLPs can contain tax traps"

"When owners use IRA funds to invest in partnerships, as opposed to stocks, bonds and funds, they owe tax on certain annual income from the partnership exceeding $1,000 because of an antiabuse provision. This levy is known as Unrelated Business Income Tax, or UBIT, and its top rate of 39.6% can take effect at about $12,000 of taxable income."

Thousands Hit With Surprise Tax Bill on Income in IRAs - WSJ
not just MLP. commodity ETFs and other investments that generate K-1 can cause this. But the tax bill is against the IRA and the IRA needs needs to file the tax return. For T-IRAs it is the total UBIT for all T-IRAs related to one owner. I don't know if T-IRA and R-IRA for one owner are considered together or separate for this tax trap. I just try to avoid the K-1 in those accounts.
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