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Note on Own REITs and MLPs in a Tax Deferred Account

Lovely discussion of David Fish papers (http://seekingalpha.com/article/256131-dividend-champions-focus-on-master-limited-partnerships-mlps and http://seekingalpha.com/article/256313-dividend-champions-focus-on-reits) inspired and pushed me to think once again and to write this note.


I guess that there are no there are no MLPs and only few REITS in Champion list is simple because they suppose to pay  90+% of their earnings to holders, so they do not have “fat” to protect the distributions if something is going wrong with their .


Yes, the tax advisers mostly right pointed that MLPs and REITs should not be owned in a tax deferred account, simply due to current favorable low taxation, effectively turning it into “ordinary” tax income upon withdrawal. But being a natural contrarian and long-term investor I held all my MLPs and REITs (as well as high-yield dividends stocks) in my retirement account. My points to do so are:

a) I believe in compound interest and MLPs and REITs give me high yield (in average about 9.5% on my purchase price) safety distributions that I reinvest in the same or different stocks. I cover potential 30% withdrawal taxes within 5 years (my average a stock or unit holding time).

b) If I pay UBIT, I fully deduct it from my taxes (I have to keep such record myself, my broker does not provide tax info for my retirement account).

c) If I held my 15 different MLPs and REITs in regular (non-tax-deferred) account, the time I spend (or pay to accountant) dealing with K-1s for tax preparation cost me more than potential disadvantages for ownership these stocks in tax deferred account.

d) I know thepresent MLPs and REITs taxation rules and IRA withdrawal rates, I do not know them at the time I have to withdrawal money from my retirement account.

 

Please note that

* I do need now income from distributions and distributions I receive in my regular and retirement accounts.

* I’m not an accountant or tax professional. I use TaxCut from H&R Block to make my taxes (I found that it gives me more advantages than TurboTax).

* I use Scottrade for my retirement account.

 

Even remembering famous “Past Performance Does Not Guarantee Future Results” I think it will be fruitful to calculate probabilities to pay UBIT  let’s say on 1000 units for each of David’s CCC based on each company historical data (usually available on WWW or from IR department).

 

Your comments are welcome!

Disclosure: I have now 15 different MLPs and REITs (maximum 1000 shares) and I plan to buy more REITs or/and MLPs in future or increase my stake in existing positions. I don't know there market will be in 72 hours 8-)......