The Facts Are In - MLPs Work Great In IRAs [View article]
Schwab does not charge to do the 990-T. They are great for doing this work. All I do is send them the form. Even better is that now that the K-1s are available electronically, I can download them by account. Then I fax using email so all I do is send an email with the K-1s as attachments. The whole process is very quick.
The Facts Are In - MLPs Work Great In IRAs [View article]
The K-1 references the account number because it's the account (i.e., the IRA) that should pay the tax. In general, it is your broker that should get the K-1, not your accountant, although I have heard that many brokers just send out a letter saying do it yourself. Fortunately, Schwab is responsible. They request the K-1s, I send them in, and that's it. They also send my a copy of the 990-T they file with the IRS.
The Facts Are In - MLPs Work Great In IRAs [View article]
Bob,
I'm not an accountant, but I am a retired pension actuary. I have given plenty of professional advice about IRAs in my time. It is my training in qualified plans, including IRAs, that gives me confidence that recapture is not a concern for MLPs in an IRA. For a taxable MLP, the basis is reduced as principal is returned through distributions. This is why the yearly tax on part of the distribution is delayed and it makes perfect sense that these delayed taxes must eventually be paid, in this case when the MLP is sold. For an IRA, the basis of all investments is zero. No tax is paid until the investment, plus accumulated returns, are actually distributed. There is no "recapture" because the entire distribution is taxable income at ordinary rates when received. The easiest way to see this is with an IRA that only had an MLP as an investment. As the MLP was distributed then everything would be taxable income. That said, if the MLP were in a Roth IRA, then there would be no tax on distribution. That is a great advantage of using a Roth IRA.
The Facts Are In - MLPs Work Great In IRAs [View article]
In general, your statement that a negative UBTI from one MLP can not be used to offset positive UBTI from another applies to passive losses, not UBTI. For taxable trusts, the passive losses from MLP A can not be used to offset passive gains from MLP B. With regard to UBTI, Schwab has assured me that the negative amount on line 20v from one MLP can be used to offset the positive amount on another line 20v from a different MLP. Schwab prepares, signs and files the 990-t, and they are certainly a fiduciary on which I can reasonably depend. If they operate that way, it's good enough for me, especially since I believe that is correct.
The Facts Are In - MLPs Work Great In IRAs [View article]
Bob,
I appreciate your comments and concern. The article research you reference, which is very good, spells out recapture on page 32 and then discusses IRAs and UBTI on pages 34 - 35. That research does not address recapture in IRAs, at least directly. As I noted, I do not believe that recapture applies to IRAs. However, what I believe is not important. Schwab prepares, signs, and files my 990-T each year. They have told me that they only look at line 20V, although they ask for the entire K-1 package and I send it to them. I have never seen any tax due on a 990-T, and there certainly has never been any money taken out of one of my IRAs to pay income tax. My bottom line is that MLPs make excellent investments either within or outside of an IRA. I think it's sad that the standard CYA warnings in research are keeping many people from making great investments in their IRAs when in fact little or no tax will actually be paid. Lastly, I have yet to see any comment from anyone saying that they actually had to pay tax out of their IRA.
The Facts Are In - MLPs Work Great In IRAs [View article]
As we've noted, that recapture amount makes perfect sense in a taxable account (where tax has yet to be paid), and no sense whatever in an IRA (where no tax, except for UBTI, is paid until distributed). To me, this completely explains why recapture is such an issue for taxable accounts, but is not applicable to IRAs.
The Facts Are In - MLPs Work Great In IRAs [View article]
You are absolutely right about 13J. That is why for the large account I mentioned distributions (line 19) were 99% of income (line 1). Distrbutions were only 76% of taxable income (line 1 - line 13J).
The Facts Are In - MLPs Work Great In IRAs [View article]
I think the IRS processes the 990-Ts just like all the other tax forms. They probably don't have this as a high priority item since almost all the forms show no tax due.
The Facts Are In - MLPs Work Great In IRAs [View article]
I was concerned when I read this as well. However, BBEP reported negative UBTI on line 20v just like everyone else. I haven't tried to ask them how they reconcile this.
The Facts Are In - MLPs Work Great In IRAs [View article]
I have read all these horror stories about MLP sales as well. As far as I know, the recapture issues are very real, but only for MLPs held in taxable accounts. It even makes sense for taxable accounts, since the MLP received tax benefits while it was held and the delayed tax must be paid sometime (at least that's how the IRS thinks). This delayed tax issue isn't needed with an MLP in an IRA since all taxes are delayed in an IRA until actual distributiuons are made.
The Facts Are In - MLPs Work Great In IRAs [View article]
In 2012 I sold all of my LINE and never bought it back. I also sold out of all MLPs on Nov. 7 when the market went nuts and then essentially bought back all of BBEP, MCEP, QRE, and VNR by the end of 2012. Overall, I made a slight gain by this elaborate sale/ buyback. After all of this, I saw only negative numbers on 20v. I'm expecting to see no tax due on the 990-Ts when I receive them from Schwab at the end of this month.
The Facts Are In - MLPs Work Great In IRAs [View article]
As far as I know, the only tax an IRA pays itself is no UBTI in excess of $1,000. Outside of that IRA distributions are taxed as ordinary income to the person that receives the distribution.
The Facts Are In - MLPs Work Great In IRAs [View article]
The Facts Are In - MLPs Work Great In IRAs [View article]
The Facts Are In - MLPs Work Great In IRAs [View article]
They also send my a copy of the 990-T they file with the IRS.
The Facts Are In - MLPs Work Great In IRAs [View article]
I'm not an accountant, but I am a retired pension actuary. I have given plenty of professional advice about IRAs in my time. It is my training in qualified plans, including IRAs, that gives me confidence that recapture is not a concern for MLPs in an IRA.
For a taxable MLP, the basis is reduced as principal is returned through distributions. This is why the yearly tax on part of the distribution is delayed and it makes perfect sense that these delayed taxes must eventually be paid, in this case when the MLP is sold.
For an IRA, the basis of all investments is zero. No tax is paid until the investment, plus accumulated returns, are actually distributed. There is no "recapture" because the entire distribution is taxable income at ordinary rates when received. The easiest way to see this is with an IRA that only had an MLP as an investment. As the MLP was distributed then everything would be taxable income.
That said, if the MLP were in a Roth IRA, then there would be no tax on distribution. That is a great advantage of using a Roth IRA.
The Facts Are In - MLPs Work Great In IRAs [View article]
With regard to UBTI, Schwab has assured me that the negative amount on line 20v from one MLP can be used to offset the positive amount on another line 20v from a different MLP. Schwab prepares, signs and files the 990-t, and they are certainly a fiduciary on which I can reasonably depend. If they operate that way, it's good enough for me, especially since I believe that is correct.
The Facts Are In - MLPs Work Great In IRAs [View article]
I appreciate your comments and concern. The article research you reference, which is very good, spells out recapture on page 32 and then discusses IRAs and UBTI on pages 34 - 35. That research does not address recapture in IRAs, at least directly.
As I noted, I do not believe that recapture applies to IRAs. However, what I believe is not important. Schwab prepares, signs, and files my 990-T each year. They have told me that they only look at line 20V, although they ask for the entire K-1 package and I send it to them. I have never seen any tax due on a 990-T, and there certainly has never been any money taken out of one of my IRAs to pay income tax.
My bottom line is that MLPs make excellent investments either within or outside of an IRA. I think it's sad that the standard CYA warnings in research are keeping many people from making great investments in their IRAs when in fact little or no tax will actually be paid.
Lastly, I have yet to see any comment from anyone saying that they actually had to pay tax out of their IRA.
The Facts Are In - MLPs Work Great In IRAs [View article]
The Facts Are In - MLPs Work Great In IRAs [View article]
Don't Be Afraid To Put MLPs In Your IRA [View article]
The Facts Are In - MLPs Work Great In IRAs [View article]
The Facts Are In - MLPs Work Great In IRAs [View article]
The Facts Are In - MLPs Work Great In IRAs [View article]
The Facts Are In - MLPs Work Great In IRAs [View article]
This delayed tax issue isn't needed with an MLP in an IRA since all taxes are delayed in an IRA until actual distributiuons are made.
The Facts Are In - MLPs Work Great In IRAs [View article]
After all of this, I saw only negative numbers on 20v. I'm expecting to see no tax due on the 990-Ts when I receive them from Schwab at the end of this month.
The Facts Are In - MLPs Work Great In IRAs [View article]