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Author: ricki69 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: partnerships in IRA's? Date: 3/15/2008 3:41 PM
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Does anyone know anything about partnerships? A friend told me not to put any MLP'S,LP's or PTP'S in my roth IRA because I would be penalized taxwise somehow but did not know why. I thought that was the whole idea of roth IRA's, to not tax earnings on investments inside the IRA? Thanks in advance for any input or advise!
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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61920 of 75335
Subject: Re: partnerships in IRA's? Date: 3/15/2008 4:10 PM
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ricki69 asks,

Does anyone know anything about partnerships? A friend told me not to put any MLP'S,LP's or PTP'S in my roth IRA because I would be penalized taxwise somehow but did not know why. I thought that was the whole idea of roth IRA's, to not tax earnings on investments inside the IRA? Thanks in advance for any input or advise!

If you hold a Master Limited Partnerships (MLP) in a Traditional or Roth IRA, you must pay tax on their Unrelated Business Income (UBI). See IRS Form 990-T.

http://www.irs.gov/pub/irs-pdf/i990t.pdf

intercst

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Author: Hohum77 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61921 of 75335
Subject: Re: partnerships in IRA's? Date: 3/15/2008 5:17 PM
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If you hold a Master Limited Partnerships (MLP) in a Traditional or Roth IRA, you must pay tax on their Unrelated Business Income (UBI).


Actually, taxes become an issue in an IRA only if UBI > $1000.


A decent resource for partnership info is the National Association of Publicly Traded Partnership (NAPTP) site. The PTP 101 and FAQ section has some helpful background info.

http://www.naptp.org/index.html


Hohum

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61926 of 75335
Subject: Re: partnerships in IRA's? Date: 3/16/2008 1:33 PM
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The royalty trusts described here--

http://boards.fool.com/Message.asp?mid=12276936

are technically partnerships. The UBTI question when held in IRAs and Roths has been much discussed.

These trusts routinely send you a detailed tax package telling you exactly how to file taxes--especially to claim the oil depletion allowance (or minerals depletion in the case of iron ore trusts).

But apparently this issue has been resolved. SBR this year has a statement in their tax booklet indicating the UBTI is due only if you borrow money to buy your shares. (But IRAs are not allowed to borrow money anyway.)

In previous debates, some royalty trusts have offered to appear in tax court for their unit holders. They feel strongly that UBTI is not due on their unit payments.

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Author: dond261 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61935 of 75335
Subject: Re: partnerships in IRA's? Date: 3/17/2008 6:17 PM
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I have held REITs, BDCs, Royalty Trusts(including CANROYS) and MLPs in both my Roth and Traditional IRA for a number of years.

My tax man (CPA) has had no problem with them; it did increase my preparer fees due to the number of pages but that was it.

Don

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Author: Hohum77 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61937 of 75335
Subject: Re: partnerships in IRA's? Date: 3/17/2008 6:40 PM
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I have held REITs, BDCs, Royalty Trusts(including CANROYS) and MLPs in both my Roth and Traditional IRA for a number of years.

My tax man (CPA) has had no problem with them; it did increase my preparer fees due to the number of pages but that was it.

Don


The REITs and DBCs work well in an IRA.

- With the CanRoys you gave up 15% of the distributions. Since most of the CanRoys pay 10+% distributions, you gave up at least 1.5%

- With the MLPs you need the unit price to go up, since you do not benefit from the "other income" being added to your cost basis.


Hohum

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Author: dond261 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61938 of 75335
Subject: Re: partnerships in IRA's? Date: 3/17/2008 11:46 PM
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Hohum

You lost me on your statement on MLPs.

"With the MLPs you need the unit price to go up, since you do not benefit from the "other income" being added to your cost basis."

My MLPs unit prices have usually gone up but I also get cash distributions(about 8%) which are reinvested so my number of units goes up. That's good enough for me.

As to CANROYS 15% tax, the net % realized is still better than most other dividend payers and most of them are monthly payers. I think they are a good way go since most are increasing their dividends.

I have beaten S&P 500 regularly with this program.

Don

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Author: Hohum77 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61939 of 75335
Subject: Re: partnerships in IRA's? Date: 3/18/2008 2:44 PM
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"With the MLPs you need the unit price to go up, since you do not benefit from the "other income" being added to your cost basis."


I think I have this right.
Outside an IRA,
MLP Cost basis = MLP original cost + other income - cash distribution (treated like Return of Capital)


Since you don't track basis in an IRA (at least for tax reasons), you don't see/get the benefit of "other income" when the price goes down. OTOH, when the MLP units increase in price in your IRA, you only consider the gain and the distributions add cash to your account.

BTW, I actually invested in a tiny MLP in my Roth IRA about 2 years ago, and did really well with the investment. In 2006, UBI from the investment was $30, though I have not seen the 2007 UBI numbers yet. Excluding distributions, I made over 200% return on the investment. So I am not saying it can't/shouldn't be done, one needs to know about UBI/other income and the trade-off involved.


Hohum

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