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Author: rstmnum Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121217  
Subject: MLPs in IRAs Date: 4/16/2009 8:31 AM
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I am interested in KPM because of its yield. My understanding is that the dividend is taxed at regular income tax rates. 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)?
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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105789 of 121217
Subject: Re: MLPs in IRAs Date: 4/16/2009 9:32 AM
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Can anybody explain the consequences of holding KPM or other MLPs in an IRA (Traditional or Roth)?
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I'm guessing the symbol you meant is KMP - Kinder Morgan Energy Partners.

The problem you can have with a partnership interest in an IRA is that business income can be, and often is, taxable to a tax-exempt entity (including retirement plans, and that includes IRAs) as unrelated business taxable income (UBTI.) UBTI is taxed at corporate rates.

Last year, based on a client's K-1 I have, KMP reported a net ordinary taxable loss, and they did not report anything on the related schedules that I can see as UBTI. That doesn't mean that they won't in a year when they have more income.

It makes no difference whether your IRA is a traditional or a Roth.

Bill

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Author: juanona40 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105790 of 121217
Subject: Re: MLPs in IRAs Date: 4/16/2009 1:22 PM
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There's an excellent post on this issue over here:

http://boards.fool.com/Message.asp?mid=27608315

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Author: rstmnum Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105803 of 121217
Subject: Re: MLPs in IRAs Date: 4/17/2009 8:01 AM
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Thanks a lot to you and the other poster who pointed to the post of the oilengineer. This is really great information (typical for the Fool boards!)

And yes, of course, KMP. Sorry for my early morning dystypia. Have a great day wherever you all may be.

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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: 105808 of 121217
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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