This is a question cross posted to a specific MLP board. What is the disadvantage to purchasing an MLP in a 401K or SEP IRA account? That's where I currently have funds available. Also in the past I disliked the extra burden the MLP created when I held them in taxable account. I assume I would avoid that buy purchasing in a retirement account. -- drdm

* MLPs offer a type of tax shelter. If there are available dollars to invest from both taxable and non-taxable accounts, it would usually be more tax efficient to hold MLPs in the taxable account. I've seen people write that putting MLPs in an IRA "wastes" that tax shelter. As one Fool put it today in a newsletter: "You can hold MLPs in your IRA, but the benefit of a tax-advantaged account is arguably wasted on an instrument that’s already tax-advantaged in the first place." ?To me, since I have most of my financial assets in IRAs... it's been expedient to buy my MLPs in IRAs and see no issues with it. It can be a nice distribution either way and I preferred holding them in IRAs to avoid tax complexities.

* MLPs throw off UBTI (unrelated business taxable income). Oddly enough, depending on what they are doing each year, that number can be either positive or negative.... usually it remains one or the other for extended periods. Anyway..... if it is throwing off positive UBTI, any amount over $1000 annually in a IRA (or other non-taxable account) is taxable anyway... for that year. The amount is paid by the account administrator (meaning your broker)... who then bills you for the tax... plus administrative fees. I imagine the amount varies from broker to broker.

There is an MLP investment board at Yahoo. The community there is very diligent about collecting UBTI information from community members. In this way, it is possible to identify MLPs that have consistently been throwing off negative UBTI and tracking the trends in the amounts. Well worth checking out.

* There *may* be complications from States. I forget the details right now because I haven't been involved with MLPs for a couple years, but I think I remember hearing of instances where the various States where MLPs do business have come after IRA account owners for using the accounts to shelter State MLP distribution taxes when the amounts are above the State's minimum taxable income threshhold. Not sure about that.... but the Yahoo MLP board could address that. Probably the key person to ask is an individual who goes by the name "Factoids". He used to be pretty active here at the Fool also, but lately it seems he just confines himself to Yahoo since he couldn't rouse the degree of community participation here that he wanted. He's a very analytical individual and he tracks "everything".

Hope that helps!

Rob