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Considering the universe of investment options out there, I can't think why you'd want to buy a partnership interest that throws off UBTI in a retirement plan. Ever.


Here's the reason I have been considering it. In a small IRA that I am trading for my mom, I am using a blend of stock screens that have been developed on the Mechanical Investing board here at TMF. (I realize the low regard that some might have for 'MI', but let's set that aside for a minute...)

Recently, on one of the screens that I employ, the stock AC showed up. There was some discussion on the MI board about holding an MLP (which AC is, apparently) in an IRA, and whether that was advisable or not. There was not total agreement, but the consensus seemed to be -- given the $1000 UBTI exemption -- that it depended on how much of the MLP one was buying and how long one was planning to hold the stock. Would you agree with that?

In my mom's case, if I were to buy AC, it would be about $4000 worth of it, and it is likely I would hold it for somewhere between 2 and 12 months (depends on how long it stays on the screen, but that would be a decent guess). Given that, I would imagine that we would be well within the $1000 UBTI exemption amount. But I just wondered how I might know for sure, or estimate ahead of time? I also wondered about the possibility of being liable for state tax somewhere where AC does business. It looks as if I might still need to research that some more.

Many, if not most, of them are structured to produce some kind of tax advantage for the investor, and you don't need it in an IRA. It would be like buying municipal bonds in an IRA. You should never do that, either.

As I've already revealed, I am not a tax expert. :-) When you say, "you should never do that," are you saying that strictly from a pragmatic perspective, or also from a more philosophical/ethical perspective?

Some MLPs are quasi-preferred stock issues, and they just produce portfolio income, and so they wouldn't be so bad.

How does one tell which are quasi-preferred stock issues? Do you happen to know if AC is one of these? :-) Am I correct in interpreting your comment that "they wouldn't be so bad" to mean that they would not produce UBTI?

Thanks very much indeed. This has all been very educational!


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