I have called my broker and my tax man. Neither could tell me what would be the difference in investing in MLP's Would it be the same as investing in stocks? You need a new broker and a new tax man. They both should be able to tell you about the differences between stocks and MLPs - each from their own perspective.Common stocks are an ownership share in a corporation. The corporation does it's business, [hopefully] makes money, pays tax on those earnings and then can send the rest of the money to you - the shareholders - as a dividend. You then pay tax again on that dividend. So there are two levels of tax on a corporation's earnings - the corporation pays tax on the earnings, and then the shareholders pay tax again when those earnings are paid to them as dividends.An MLP is a Master Limited Partnership. A partnership does not pay income taxes. Instead, the partners of a partnership report their share of the partnership's income directly on their tax returns. They must do that whether the earnings are distributed to them or not. When the partnership does distribute the earnings, there is no tax on the distributions because the partner already paid tax on the earnings. Partnerships do NOT pay dividends, they make tax-free distributions. And there is only one tax on partnerships, paid by the partners. That makes partnerships a bit more tax-efficient.That is the typical treatment for an individual owner. But you are considering holding these in an IRA, so the taxes are a bit different. The IRA itself does not pay tax. Instead you pay taxes on withdrawals from a traditional IRA or, if you meet the requirements, get tax free withdrawals from a Roth IRA. There is a wrinkle, though, for MLPs. An MLP held in an IRA can generate something called Unrelated Business Taxable Income (or UBTI). UBTI is taxable in an IRA, but only if it exceeds $1000. So if your MLP investments generate more than $1000 of UBTI, your IRA itself must pay income tax on that.Therefore, it is important to know how much UBTI to expect before investing in an MLP in an IRA.--Peter
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