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we did learn recently if you have capital gains from a UBTI investment in a Roth, it can have tax implications.

The characterization of 'capital gains from a UBTI investment' causing the tax implications in a Roth is incorrect, IMO. It's actually UBTI that causes the tax issues.

The problem, as was discussed in that thread (and the other thread referred to in that thread), is that what many people would normally think of as 'capital gains' when selling an MLP is actually not classified as 'capital gains' by the IRS. The issue is generally more impactful the longer you've been holding the MLP. That's because more of your initially invested capital (i.e. basis) will have been returned through (already tax-sheltered) distributions the longer you hold the MLP.

In that case, much of the difference between the diminished basis and the proceeds from the sale becomes 'partnership income', rather than a 'capital gain'. Since the IRA is the limited partner, and the purpose of the underlying MLP is unrelated to the purpose of the IRA, the partnership income is then classified as UBTI (Unrelated Business Taxable Income). UBTI > $1000 in any IRA (Roth or traditional) requires the trustee of the IRA to file a 990-T tax return for the IRA and pay UBIT (Unrelated Business Income Tax) taxes. The taxes paid must come out of the IRA funds, as paying them from non-IRA funds would be considered an excess contribution to the IRA.

AJ
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