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■ I invest primarily in master limited partnerships (MLPs) and real estate investment trusts (REITs), as I believe these asset classes provide me with the best chance to beat the market and earn the return necessary to meet my investing goal. However, I do sprinkle in some exposure to the... More
  • Should you hold MLPs in IRAs or 401(k)s? 71 comments
    Feb 8, 2011 2:21 AM | about stocks: KMR, KMP, EEQ, EEP, AMJ

    There are all sorts of tricky tax rules associated with master limited partnerships, or MLPs.  One of the most important rules that MLP investors need to understand deals with the consequences of holding individual MLPs inside of a retirement account, such as a 401(k) or an IRA.  Investors are usually told that they should hold dividend paying securities in their retirement accounts so that they are not taxed at ordinary income tax rates on dividends or distributions paid.  Does the same hold true for MLPs, which typically pay among the highest yields of any asset class? 

    MLPs and Retirement Accounts

    Can MLPs be held in a retirement account?  Yes.  Should MLPs be held in a retirement account?  Probably not.  Why?  Because there are potentially bad tax consequences to doing so.  As I'm sure you already know, the principal advantage that IRAs and 401(k)s have over traditional investment accounts is that IRAs and 401(k)s have favorable tax treatment.  In the case of traditional IRAs and 401(k)s, the contributions to such accounts are tax-free and you need not pay taxes until you actually withdraw the money; in the case of Roth IRAs and Roth 401(k)s, contributions are taxed but withdrawals are tax-free.  

    But this tax advantage may largely disappear if your retirement account is loaded with individual MLPs.  Why?  IRAs and 401(k)s are subject to taxes on a special type of income called unrelated business taxable income, or "UBTI."  Generally speaking, the distributions paid by MLPs are likely to be considered UBTI If an IRA or 401(k) earns more than $1,000 of UBTI annually, the UBTI income above $1,000 is subject to tax even if the securities are held in a retirement account

    Think about the implications of this tax rule.  If your retirement account earns more than $1,000 per year in UBTI, you've essentially just eliminated the tax advantage (single taxation rather than double taxation) of your retirement account!  For that reason, it is usually a good idea to hold MLP common units in a taxable account rather than a retirement account. 

    (Side note:  It is important to note that not all of the distributions paid by an MLP will be considered UBTI.  This is because UBTI is calculated by subtracting the partnership's deductions allocated to the investment from the income generated by the investment.  For instance, assume an investor holds $10,000 of "MLP X" in his retirement account, and MLP X pays total distributions of $1,000 annually on the investor's $10,000 investment.  Also assume that the amount of income allocated to you by MLP X is 20% of the distributions you receive, meaning that you were able to defer taxes on $800, or 80%, of the distributions.  MLP X has generated only $200 of UBTI, not $1,000.  The deferred portion is not counted toward UBTI.)

    A Better Way to Hold MLPs in Your Retirement Account

    All is not lost, however!  There are two primary ways that you can invest in MLPs without generating any UBTI:  i-shares and ETNs/ETFs. 

    I-Shares

    The first way to gain exposure to MLPs in your retirement account is through institutional shares known as "i-shares."  I-Shares were created to allow investors to hold the securities of individual MLPs in tax-advantaged accounts, like IRAs and 401(k)s.  There are currently only two i-shares available for purchase.  The first, Kinder Morgan Management, LLC (NYSE: KMR) mirrors Kinder Morgan Energy Partners (NYSE: KMP).  The second, Enbridge Energy Management, LLC (NYSE: EEQ), mirrors Enbridge Energy Partners (NYSE: EEP).  By purchasing either of these i-shares, you get to enjoy virtually the same investment returns that you would have achieved if you owned the underlying common units. 

    The primary differences between holding i-shares and common units are (i) you can hold i-shares in a retirement account without incurring any UBTI or other unwanted tax consequences and (ii) distributions in i-shares are paid in stock rather than cash.  Think of it like a stock split; each time a distribution is paid, you get more shares.  Even better, starting one year after purchase all of your gains when you sell are treated as long-term capital gains.  Another huge advantage is that you will not have to file K-1 statements as you would with traditional MLPs

    ETNs and ETFs

    The second way to gain exposure to MLPs in your retirement account is through exchange-traded notes, or ETNs, and exchange-traded funds, or ETFs.  Each has its benefits and its drawbacks. 

    The major benefit provided by ETNs is that they have "pass-through" tax treatment.  In other words, there is no corporate tax payable by the ETN; just like when you own MLPs directly, the only tax that is paid on distributions is at the unitholder level.  The major drawback is that ETNs are the unsecured obligation of the issuing bank, and investors in the ETNs bear the credit risk associated with that bank.  For instance, one of my favorite ETNs, the JPMorgan Alerian MLP Index (NYSE:  AMJ), is issued by JPMorgan.  Holders of this ETN bear the credit risk (however small) associated with JPMorgan; if JPMorgan were to go into receivership (the equivalent of bankruptcy for a bank), they would be unsecured creditors and would likely lose some or all of their investment in AMJ. 

    The major benefit provided by ETFs is that there is no credit risk associated with the securities.  There is a large price to pay for this protection, however, and it comes in the form of double taxation.  MLP ETFs do not get pass-through tax treatment; rather, the ETF pays corporate taxes on the distributions it receives from the MLPs it holds and investors must also pay taxes on the dividends they receive from the ETF.  Everyone must make their own investment decisions, but double taxation is, for me at least, too high a price for me to pay -- which is why I've opted for the ETN over the ETF. 

    Important tax disclosures

    I am not a tax specialist.  The information presented above was gathered from reports put out by Wells Fargo and Merrill Lynch on the tax treatment of MLPs.  Therefore, I make no guarantees as to its accuracy, and you should not rely upon it when making an investment decision.  This information is not intended to provide tax advice or to be used by any person to give tax advice. Taxpayers may not use this information to avoid taxes or penalties on taxes that may be imposed on such persons or taxpayers.  Tax laws are complicated and subject to change.  I urge you to seek tax advice based on your particular circumstances from an independent and professional tax advisor and a tax attorney

    Themes: MLPs Stocks: KMR, KMP, EEQ, EEP, AMJ
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Comments (71)
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  • Your work looks quite thorough and Alerian was on my buy list until I read seekingalpha.com/artic...

     

    Any thoughts as to the conclusions of Ron Rowland?
    10 Feb 2011, 02:02 PM Reply Like
  • My experience is that UBTI is very correlated to MLP net income and NOT distributions. I have held several hundred thousand worth of MLP's in IRA's for many years now and never breached the $1000 exemption. In 2010 my MLP's in aggragate reported negative net income an insignificant or negative UBTI. I dont think you own much of this stuff. But I do own the i-shares as well as a way to reduce the total MLP exposure in my IRA. Also TOO is an MLP but treated as a C-corp for taxes somehow. So you get a 1099 rather than a K-1. For small to medium investors I think it is a huge mistake to avoid MLP's over this issue.
    15 May 2011, 09:18 AM Reply Like
  • Author’s reply » Thanks for your comments. You are correct that UBTI is correlated with net income, as income earned by an MLP is in most cases UBTI by definition. UBTI is calculated by subtracting the partnership's deductions allocated to its investments from the income generated by such investments. One of the points that I was trying to make in the article is that those who hold MLPs in a retirement account run the risk of losing the account's tax advantaged status if the UBTI goes above $1,000. While usually only a tiny fraction of each distribution is UBTI (such that it is possible to hold a significant aggregate amount of MLPs in a retirement account without breaking above the $1,000 barrier), it is, in my opinion, not worth the risk of potentially losing the tax-advantaged status of my 401(k) and IRA by doing so. What's more, the fact that the vast majority of the distributions are tax deferred gives me even more reasons to hold them in my taxable account.

     

    Obviously, the decision on whether to hold MLPs in a retirement account depends on the investor's perception of the tax risk associated with doing so. I don't proclaim that one approach is definitely "right" and the other is "wrong;" rather, I am trying to shed some light on the risks associated with one of the two approaches.
    16 May 2011, 10:25 PM Reply Like
  • Thanks for the info mische, good stuff.

     

    I have a question if you don't mind:

     

    I know that the IRA custodian is responsible for filing form 990T for UBTI and paying any tax out of the IRA monies, but how is the tax paid for the sale of an MLP from an IRA account? Or is that deferred til withdrawal from the IRA like any other profits made in the IRA?
    19 Nov 2011, 02:24 PM Reply Like
  • What is the tax situation when one sells a mlp inside a ira?
    5 Jan 2012, 04:19 PM Reply Like
  • Did you ever get an answer to this question? It is important considering the reduction in "cost" each year. All anyone seems write about if UBI - which is seldom of consequence.
    15 Feb 2012, 03:40 PM Reply Like
  • I've never had to pay taxes on UBTI and I have a lot of cash invested in MLP's in my IRA. I do have a significant amount of loss carryovers to use against any UBIT should anything over $1,000 arise in a given year. (These loss carryovers must be submitted annually on your 990-T to maintain their use. And this makes sense, because each year the numbers will be modified by additional K-1, Line 20v loss or gain.)

     

    Moreover, the blogger stated, "Generally speaking, the distributions paid by MLPs are likely to be considered UBTI." Holy cow! That's news to me! If the distributions emanate from cash flow generated by the company's primary energy-related business, how is that Unrelated Business Taxable Income? I think that "are likely" should read "are unlikely."

     

    Finally, it's a great relief to compound high income in an IRA without the labyrinthian complexities of K-1's.
    17 Feb 2012, 01:21 PM Reply Like
  • Nothing different from not selling it. You'll still receive a K-1 and you'll want to factor in Line 20v as you usually do.
    17 Feb 2012, 01:26 PM Reply Like
  • You don't pay tax on a stock, bond, or MLP sale in an IRA. You pay tax on withdrawals.
    17 Feb 2012, 01:28 PM Reply Like
  • If you die first, your beneficiary gets it completely tax free! The value at time of death is the "basis" for the person who inherits it! ONE good law from Washington.
    12 Jun 2012, 04:58 PM Reply Like
  • This blog's title is: :Should you hold MLPs in IRAs or 401(k)s?" So, it is specifically about retirement accounts, right?

     

    Regarding iShares, you state: "Even better, starting one year after purchase all of your gains when you sell are treated as long-term capital gains."

     

    If the account in question is an IRA, 401(k) or equivalent, I understand that all withdrawals are treated as ordinary income, since the money had not been taxed previously. If the account in question is a Roth account, none of the withdrawals is taxed at all, the original earned income having already been taxed, correct?

     

    So, how does a withdrawal from either get favorable tax treatment as a long term gain?

     

    Thanks,

     

    Mike
    22 May 2011, 05:38 AM Reply Like
  • No favorable tax treatment except in a no-tax Roth.
    17 Feb 2012, 01:29 PM Reply Like
  • I hold MLPs in my IRA indirectly through closed end funds, and have had very good experience with Clearbridge Energy (CEM) and Tortoise MLP Fund (NTG). An advantage of the closed end funds over ETNs is you don't have the credit risk of the bank that issues the ETN. While the ETN may "track" a bunch of MLPs or an MLP index, you still bear the credit risk of JP Morgan or whatever other bank issues the ETN. So you have the risk of the MLP asset class plus the credit risk of the bank issuer.
    14 Jun 2011, 06:11 PM Reply Like
  • Comment: I searched forever to find this article...it belongs in an SA Library of Timeless Articles.

     

    Question: Are the tax regs (and the implications for IRAs) for REITs similar to those for MLPs?
    19 Jun 2011, 10:54 AM Reply Like
  • My understanding is that there is no relationship. REIT distributions are taxed at ordinary rates, which is why they are an excellent choice for an IRA, and why I own them in mine.

     

    The following two links relate directly to this article:

     

    http://bit.ly/yb1qPX
    http://bit.ly/Hlq1xS
    7 Apr 2012, 01:05 PM Reply Like
  • Yes. Both send K-1's, and do not pay dividends but "distributions," which are different to the IRS.
    12 Jun 2012, 05:01 PM Reply Like
  • I own O and I've never recieved a K-1
    14 Apr, 10:41 AM Reply Like
  • April May,

     

    Wrong.

     

    REITs do NOT send K-1s, they send 1099s.

     

    REIT dividends are taxed mostly or totally as ordinary income, and they are dividends, not distributions. The tax regulations are very different.

     

    I own many of both.
    14 Apr, 10:56 AM Reply Like
  • richjoy403,

     

    I have read in tax references that some mReits do occasionally generate UBTI. I have yet to read anything from a discussion board participant of having actually encountered this with their own holdings in a retirement account. It appears to be rare and I wonder how it ever gets noticed either by stock holders or the IRS.
    14 Apr, 12:49 PM Reply Like
  • Is MLPL also a way to avoid the tax consequences of owning an MLP in an IRA?
    6 Sep 2011, 10:55 PM Reply Like
  • Suggest reading Reel Ken's SA Articles.
    He maintains, that , when selling a MLP in an IRA that it is a complete tax event[recapture] and ordinary income is UBTI subject to 35% tax.
    Do not rely on my brief statement, Read Reel Ken!
    I'm contemplating moving my IRA MLPS to my taxable acct, by way of my yearly RMD. I believ the prices will reset.
    3 Jan 2012, 03:32 PM Reply Like
  • Reel Ken's article is wrong six ways from Sunday. He doesn't understand IRA's, MLP's, UBTI, nor even the ostensible 35% tax, which he seems to have plucked out of the air.
    17 Feb 2012, 01:36 PM Reply Like
  • I think your critical comment about Reel Ken, and for that matter, any one on these boards, IS UNCALLED FOR, and misleading.
    Not knowing your qualifications, you could be suspect!
    17 Feb 2012, 03:18 PM Reply Like
  • AMEN
    7 Apr 2012, 06:46 AM Reply Like
  • The question of what is "uncalled for" is really a question of who is accurate - as far as I am concerned. This is a rather important topic to get accurately and not mislead anyone. Spreading an inaccurate interpretation no matter how well intentioned is worthy of criticism. If you have been following discussions about MLP tax treatment that have been going on for years on internet discussion boards with participants that include long time professional tax consultants, you would know that Reel Ken's interpretation of the cumulative UBTI from MLP sale in an IRA is not an opinion that is shared at all. If anyone can provide me with any substantial evidence to support this interpretation I would love to see it. Such MLP sales within IRA's obviously have been going on for many years. Why have I not seen one comment by anyone on any board that I have followed for the last 5 years (and searched for older messages) substantiating this interpretation in any way?
    10 May 2012, 03:02 AM Reply Like
  • how are the royalty trusts different from the mlp's in an ira or are they the same?
    thanks
    5 Jan 2012, 03:39 PM Reply Like
  • I believe they are treated the same way by IRS.
    12 Jun 2012, 05:03 PM Reply Like
  • "Everyone must make their own investment decisions ... "

     

    Everyone must make his/her own investment decision...

     

    Anyone here speak English?
    25 Jan 2012, 05:52 AM Reply Like
  • I think you meant "Does anyone here speak English?".
    18 Feb 2013, 01:04 PM Reply Like
  • "Their" has been a perfectly acceptable usage for decades now as a replacement for the creekily awkward "his/her." Check a modern usage manual.
    17 Feb 2012, 01:39 PM Reply Like
  • I see the UBTI , but in using TurboTax to figure this year's taxes, I was taxed on long-term capital gains reported by APL held in a Traditional IRA. So far, I have been unable to find anyone who can explain this. Any thoughts??
    15 Mar 2012, 03:09 PM Reply Like
  • My reading indicates that partnerships are taxable in an IRA. This was done to stem opportunities for abuse but by my reading, it applies to MLPs which are public partnerships. The danger is that most partnerships throw off operating losses which reduce the basis of the partnership interest. The result is that there is usually no exposure to tax in the IRA until the investment is sold (unless the MLP were to have an operating income at which point the net operating income would be taxable in the IRA in the year earned.) The losses during the period of ownership do not result in any tax benefit unless you have operating income from other MLPs.
    The basis of an MLP is cost less the operating losses during the period of ownership. This means that you could have a taxable gain for tax purposes even if you sell if for less than you paid for it and that is the real exposure for most people.
    Again based on my reading, the amount that is taxable in an IRA will be calculated as follows: operating gains less operating losses for the year plus the gain on the sale to the extent that it results from a reduction of basis as a result of losses taken in prior years.
    This is something that CPA's don't seem to understand and it is very difficult to research. My MLPs are owned in my personal account. I cannot even figure out how to pay the tax in the IRA if I had any. Schwab will will calculate the tax for you if you use Schwab.
    16 Mar 2012, 09:36 AM Reply Like
  • I'm confused by you analysis. Have you read Reel Ken's articles on SA?
    16 Mar 2012, 03:16 PM Reply Like
  • I have read Ken Reel's article. While he is more articulate than I am, our conclusion is consistent. MLP's in an IRA subject the IRA to a potential "recapture" tax when the MLP is sold and could even result in a significant tax if you sell the position for less than you paid for it since your basis in the MLP is reduced by losses that you have taken (even though they may not have been utilized to offset "gains" in your IRA.) The law is patently unfair and the results cannot have been intended by lawmakers but based on my reading, it appears to be the law.
    PS. Try finding an person who professes a high level of technical knowledge on this point. I have not found a single "how to" article by a tax attorney or CPA that addressed these issues with any clarity. I tried to do the return to pay the tax and I could not even begin to complete it (and I am a former CPA.) As i said, I do not own my MLP's in my IRA because I do not need the hassle (and the exposure to a double tax.)
    31 Mar 2012, 09:56 AM Reply Like
  • Thanks Bob,
    After some consideration,and various opinions, I decided to transfer some mlps to my trust by way of my yearly Required Minimum Distribution[RMD]. I'm told that, by to paying ordinary income on the transfer, that the the basis and cost will reset , and is not a sale. Won't know for sure, until I get my 2012 K-1's Happy to avoid the IRA issues.
    31 Mar 2012, 12:04 PM Reply Like
  • Does anyone know if MLPs in an IRA or 401K require that you report the UBTI even if it is negative in order to show good faith?
    30 Mar 2012, 03:51 PM Reply Like
  • My understanding is that, Negative UBTI can offset Positive UBTI, and should be reported to IRA manager for tax filing , at least, when UBTI is more than $2000
    31 Mar 2012, 09:46 AM Reply Like
  • My reading indicates that you do not get to or have to report them.
    31 Mar 2012, 09:27 AM Reply Like
  • I agree that you don't have to report if your positive UBTI total is less than $1000. (By the way this is your total for all of your MLPs held in your IRA, not a separate threshold for each MLP).

     

    A number of folks have posted that you should report negative UBTI via form 990-T because you can use it to offset positive UBTI in subsequent years. I have seen such posts from folks who I am inclined to believe, but I have not independently confirmed this.

     

    A number of brokerages will do the reporting, calculation and pay the tax for you on over the limit UBTI from your account (Schwab?, Vanguard, and others) and some will not (Fidelity when I last checked). If your brokerage will handle this, you still need to make sure that they have received the K-1s for all of your MLPs held in your retirement account (some K-1's may only be sent to you).
    10 May 2012, 03:33 AM Reply Like
  • My understanding is that EACH MLP is handled separately. You never combine their K-1s. Even if you held several in IRA accounts, each one is a separate investment.

     

    Ledlights--what is your source of information on this?
    12 Jun 2012, 05:07 PM Reply Like
  • April May,

     

    My understanding is that the $1000 is the annual allowed UBTI deduction for an IRA (or any tax exempt entity) so it only makes sense to me that it is cumulative. There are other things that can contribute UBTI to an IRA besides MLPs.

     

    from
    http://bit.ly/Hlq1xS

     

    "There is a deduction that covers the first $1,000 of UBTI from all sources"

     

    or from here:

     

    IRS pub - http://1.usa.gov/Qigwqj

     

    "Form 990-T is required if the organization’s gross income from unrelated businesses is $1,000 or more"

     

    My understanding is that any "tax exempt entity" such as an IRA can be substituted here for "organization"

     

    Hmmm... Is the deduction for $999.99 or $1000.00?
    31 Jul 2012, 04:19 PM Reply Like
  • I do agree that separate IRAs are not combined. I have seen no evidence to the contrary. AFAIK each IRA is treated as a tax exempt entity and what the IRS is interested in is the total UBTI that each such entity accrues in a year.

     

    Anyone, correct me if I am wrong, but the 990-T is being filed for the IRA, it is not being filed for each individual source of UBTI in an IRA.
    31 Jul 2012, 04:28 PM Reply Like
  • REIT and IRA revisited-

     

    I am holding NLY REIT in my IRA, and am told that I need to do UBIT work. Someone above said "no" ( jdh44) but April May seems to indicated YES. I have never received a K-1 from any reit, unlike the MLP. I also searched the IRS document and find no mention of REIT whatsoever.

     

    Comments or know how ?
    10 Sep 2012, 06:19 PM Reply Like
  • This article explains that REIT dividends are taxed as ordinary income: http://bit.ly/QzI6Ss
    10 Sep 2012, 06:54 PM Reply Like
  • Thanks. I am a beginner, so pardon my thick skull. Article says "REITs must follow the same rules as all other unit investment trusts. This means that REITs must be taxed first at the trust level, then to beneficiaries." About 20 lines later it says "For all practical purposes, REITs are generally exempt from taxation at the trust level as long they distribute at least 90% of their income to their unit holders." So, I should understand that because the partnership is taxed at the trust level I DO NOT HAVE TO WORRY ABOUT UBIT?" I know my dividends are taxed as normal income, but so are many things that never make me think about UBIT.

     

    Much appreciated if you can clarify.
    11 Sep 2012, 05:15 PM Reply Like
  • Your are confusing partnerships and trusts. A partnership is not a trust. They are entirely separate critters. Their only similarity is that both are tax pass-through entities.

     

    REITs: 1) Are not subject to UBIT. 2) Pay dividends to shareholders. 3) Send you a 1099. 4) You pay tax at ordinary rates like you would for a money market fund, for which you also receive a 1099. 5) Are ideal investments to hold in an IRA, and best yet a Roth IRA.

     

    MLPs: 1) Are subject to UBIT but only if the partnership engages in an unrelated business activity, i.e. a pipeline MLP operating a grocery store. 2) Pay distributions to their unit holders. 3) An LLC is also a pass-through entity, like an MLP without a general partner. 4) Send you a K-1. 5) You pay tax according to the amount of income your partnership interest earns, which has little if any relation to the cash amount of the distribution you receive. 5) Typical partnership distributions are some combination of return of capital and depreciation, varies by partnership. 6) Are best not held in an IRA.
    11 Sep 2012, 06:40 PM Reply Like
  • Maybe #6 is not entirely cut and dried. If you meant that you should more fully realize the financial benefit from MLPs if you hold them in taxable accounts I would agree. But MLPs have been held in IRAs without any problems. If your MLPs generate UBTI over the limit then yes your IRA will owe taxes on it. Some brokers are more helpful with this than others. If your broker handles the tax you have to make sure that the broker has received copies of all of the K-1s from your MLPs, and I imagine you might want to have some cash in the IRA to cover the tax. But many MLPs generate little if any UBTI.

     

    Others have suggested that if you want to do frequent trading in MLPs then keeping them in tax free accounts has distinct advantages - which I assume has to do primarily with the multiplying complications of handling the taxes when you trade MLPs in a taxable account.
    12 Sep 2012, 03:54 AM Reply Like
  • Thanks again. jdh44 seems pretty persuasive and informed about REIT income not being subject to UBIT. I am not sure why, but I am inclined to believe. I am interested mainly in mortgage reit NLY and TWO. The broker reported the income to me as dividend on the main 1099 in my normal account, but in my self dir roth IRA I got nothing from nobody. My tax person believes that the pass-through nature makes it potentially subject to UBIT. I will try to talk him out of it.
    12 Sep 2012, 06:11 PM Reply Like
  • My conclusion is that if you have a MLP, even with UBIT in excess of $1000, in a Roth IRA or a Roth 401(k) it is NOT taxable either on a current basis or when withdrawn from these accounts. Is that the conclusion should you want to hold these investments in these retirement tax accounts?
    17 Feb 2013, 08:43 AM Reply Like
  • I have concluded differently. This issue has been discussed in detail following a number of SA articles. I believe that Reel Ken has it right. There is no difference between Roths and other retirement accounts in this regard.

     

    One of the better discussions follows this article:

     

    http://seekingalpha.co...
    17 Feb 2013, 10:12 AM Reply Like
  • I just spoke to various people at Merrill Lynch regarding tax on ubti on mlp's in IRAs..and THEY TOLD ME THAT THEY NOTHING ABOUT THIS...I EVEN TALKED TO THEIR TAX DEPARTMENT. ALL THEY WOULD TELL ME IS "TALK TO YOUR TAX ADVISOR"..LIKE EVERYONE HAS ONE...YEAH, RIGHT.
    16 Mar 2013, 03:48 PM Reply Like
  • Where can I find the Merrill Lynch report regarding tax treatment of mlps in an ira?
    17 Mar 2013, 01:59 PM Reply Like
  • This SA article says it all: http://bit.ly/UDemXj

     

    Don't Be Afraid To Put MLPs In Your IRA
    22 Jul 2013, 03:39 PM Reply Like
  • A few years after this we got this short video on the matter.

     

    A fool speaks: http://goo.gl/uKLa6
    17 Nov 2013, 07:00 PM Reply Like
  • Thanks, after discussions w/ my broker, and CPA, I find, other than the tax on UBTI, there is no other tax issue on sale in a IRA. the only other tax, is when one transfers/withdraws out of an IRA [ord inc], which I have done, as a part of my RMD. Otherwise, there are many MLPS that have little or no UBTI, ie OKS, etc. My experience1
    17 Nov 2013, 08:47 PM Reply Like
  • Why pay UBTI when you don't have too? KMR in an IRA makes more sense than KMP with its UBTI costs.
    18 Nov 2013, 08:42 AM Reply Like
  • I don't have MLPS that have UBTI in my IRA, and have too large holdings of KMR, and EEQ.
    18 Nov 2013, 03:39 PM Reply Like
  • Not sure if anyone mentioned another reason NOT to invest in MLPs within IRAs or 401Ks, especially not KMR and EEQ: namely, that you are converting tax-advantaged income into regular income when you withdraw. If you own KMR or EEQ in a taxable account, you not only get to defer income taxes until you sell, you also get long-term capital gains rates if held more than a year. If you hold them in a regular IRA, you already have tax deferral, and when you withdraw money you will pay regular income tax rates, regardless of the source of the gains. Of course, a ROTH IRA or 401K has no tax on withdrawals, but then again it wouldn't matter where you got the gains from either. Seems like there's no point, unless you just think that MLPs are the absolute best long-term investment. But diversification would seem to be a wiser policy.
    4 Jan, 01:28 PM Reply Like
  • Thanks for that reminder. Amid the extended debate about owning MLPs in an IRA, that 'feature' of traditional IRA withdrawals is often forgotten, including by me. I own KMR only in my non-qualified account, but I made the mistake of owning LNCO in my traditional IRA.
    4 Jan, 01:55 PM Reply Like
  • The reason we own Kmr in IRA's is to get the deduction.

     

    They can always be switched out of the shelter later on, by buying Kmr outright, and selling what is left in the trust, on a bounce.

     

    Very easy to switch later on. You could even pick up an extra dividend. Buy outside before the ex date, sell the inside later.

     

    EricTheRon had a question about
    diversification: http://bit.ly/124X2vv
    4 Jan, 03:00 PM Reply Like
  • deduction?
    4 Jan, 03:16 PM Reply Like
  • Be Here Now :>deduction?<

     

    History of the IRA Deduction -

     

    Forbes: http://onforb.es/1gzaduP
    4 Jan, 03:41 PM Reply Like
  • You are talking about making an IRA contribution, right? Not my space.
    4 Jan, 09:05 PM Reply Like
  • Wow this discussion has been going on for a long time! This certainly shows how misunderstood this topic really is.

     

    Does anyone have historical MLP/LP/Unit Trust Fund data to share? This would show what the UBTI tax, if any, was for them? Say for KMP, EMES or VNR? This may help everyone better understand what the potential dollar amount per share may be.

     

    In other words, if someone could show that they held 1,000 shares of KMP and only had a UBTI of say, $150 for the year then this would show that this is probably a non-issue for investors that hold less than an amount that would produce a cumulative UBTI of greater than $1,000 in a year.

     

    Or am I way off on this?
    26 Jan, 07:37 PM Reply Like
  • Are you talking one year or twenty years?
    26 Jan, 08:07 PM Reply Like
  • Invest4Wealth,
    There has been a lot of interest in UBTI data on the investorvillage website. I believe their last UBTI data collection project was for 2011?
    http://bit.ly/1d5AVGX
    http://bit.ly/1d5AXP0
    I think they also collected UBTI data in previous years so you might find some basis for a multi-year comparison there.
    I'm not sure you can rely on such data to predict likelihood of high UBTI. I seem to remember mention of 1-time events that have generated high one-year UBTI's for various MLPs. But I have seen investors report never seeing positive UBTI for some of the MLPs they have held for a long time.
    28 Jan, 02:58 AM Reply Like
  • Three years would show how the UBTI changed or didn't change during the recovery. Since last year was a great year and the other two not so much this may show the delta within scope and be helpful to the many readers and contributors.
    27 Jan, 07:48 PM Reply Like
  • I still don't know if the distributions are taxed in an IRA. What I'm hearing is everything under $1,000 UBTI is not taxed:

     

    Is that per position or for the entire account?

     

    Do I still have to file a K-1, even though I am not paying taxes on the distributions?

     

    Someone earlier mentioned filing a 990-T, why would one need to do that?

     

    That you for the post I enjoyed it.
    14 Apr, 11:16 AM Reply Like
  • Overanalytical,

     

    You do not file a K-1, you receive a K-1 from your MLP. If you own the MLP in a non-qualified account, information from the K-1 goes into your tax return, and you keep the K-1 with your tax records.

     

    Here are some resources about owning an MLP in an IRA:

     

    http://bit.ly/Hlq1xS
    http://bit.ly/QL8RyS

     

    I suggest you google 'UBTI' and/or 'UBIT' and study the results. This is a complicated subject.
    14 Apr, 12:40 PM Reply Like
  • That cleared a bit up thanks
    14 Apr, 12:51 PM Reply Like
  • A Fool speaks: http://bit.ly/12rQUy9
    14 Apr, 02:00 PM Reply Like
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