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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121112  
Subject: Re: MLPs in IRAs Date: 4/17/2009 2:20 PM
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I am interested in KPM because of its yield.

OK. I liked NFI for it's yield, too. Then it abruptly stopped paying and the price crashed. :-( Lesson learned. The hard way as usual.

My understanding is that the dividend is taxed at regular income tax rates.

Nope.

First off, KMP is a partnership. It doesn't pay a dividend. It distributes it's earnings to it's partners. The partners (that would be you if you bought it) pay taxes on whatever the partnership earns whether those earnings are distributed or not

Depending on how the partnership earns money, you'll report interest, dividends, ordinary income, capital gains, and any other kind of income they generate.

Therefore, I would like to buy it for my IRA. However, I hear that they may be problematic. However, I cannot find specifics. Can anybody explain the consequences of holding KPM or other MLPs in an IRA (Traditional or Roth)?

I think others have covered that part pretty well. However I'll point out that it is quite possible for a limited partnership to generate the dreaded UBTI and not distribute cash. It's possible for the IRA to have to pay taxes, yet not get a distribution of cash with which to pay the tax.

--Peter
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