I just read an article on Morning Star not recommending holding MLP's in Roth IRA because of complicated tax reasons. I was thinking that that was the perfect place to have them and am looking for some other opinions before I make adjustments to my account. Any ideas?
Hi seanroe13,I just read an article on Morning Star not recommending holding MLP's in Roth IRA because of complicated tax reasons. I was thinking that that was the perfect place to have them and am looking for some other opinions before I make adjustments to my account. Any ideas? The key incremental risk with MLPs in your IRA is something called "UBTI", Unrelated Business Taxable Income. If you own at least one partnership (like an MLP) in your IRA and the partnerships in your IRA generate at least $1,000 of UBTI attributed to the partnership units you own, your IRA has to pay taxes on that UBTI.The IRS has a chapter on defining what is and isn't UBTI, here: http://www.irs.gov/publications/p598/ch04.html .If you call investor relations or shareholder services of the partnership you're considering buying, you ought to be able to find out the partnership's history of generating UBTI. They probably can't offer you any guarantees on whether that historic trend will be maintained going forward, but at least that history can help you see the type of exposure existing investors have faced.Regards,-ChuckInside Value Home Fool
I hold 8 MLPs in both a Roth and Traditional IRA. While my experience is certainly no guarantee of what yours may be, during the ten years I have held them, the annual cumulative UBTI has been negative. My broker, Schwab, tracks that negative accumulation on the theory that it may offset any future positive UBTI - I have NOT researched that theory, so if anyone has any knowledge there feel free to comment on it.
huh. new one on me. i knew ubti could impact a regular ira but thought it would be fine for a roth ira. puzzling.
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