Prevent a tax nightmare for your retirement plan

R

Robert A. Green

Retirement plan investments in publicly traded partnerships generate tax bills

Most Master Limited Partnerships (MLPs) conduct business activities including energy, pipelines and natural resources.

When retirement plans conduct or invest in a business activity, they must file separate tax forms to report Unrelated Business Income (UBI) and often owe Unrelated Business Income Tax (UBIT).

MLPs issue Schedule K-1s reporting business income, expense and loss to retirement plan investor/owners. That’s the problem!

The retirement plan then has UBI, and it may owe UBIT tax. Instead of the MLP being a tax-advantaged investment as advertised, it turns into a potential tax nightmare.

Prevent a tax nightmare for your retirement plan today.

Get started by reading our new blog post.

Sincerely, Robert A. Green, CPA
 
According to Form 990-T instructions http://www.irs.gov/instructions/i990t/ch01.html#d0e78 a Roth IRA is listed under "Who Must File" - Excerpt

Fiduciaries for the following trusts that have $1,000 or more of unrelated trade or business gross income:

1. Individual retirement accounts (IRAs) described under section 408(a),

2. Simplified employee pensions (SEPs) described under section 408(k),

3. Simple incentive match plans (SIMPLEs) described under section 408(p),

4. Roth IRAs described under section 408A(b),

5. Coverdell education savings accounts (ESAs) described under section 530(b),

6. Archer medical savings accounts (Archer MSAs) described under section 220(d), and

7. Qualified tuition programs described under section 529.
 
J.P. said:
This is of no concern in a Roth IRA, correct?
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oh for crying out loud, no it is of no concern in a Roth. You can invest in whale sperm if they let you and it can churn away tax free in a Roth.
 
For sure, UBI issues affect Roth IRAs too. If a Roth IRA carries on a business activity it will have UBI and owe UBIT. That would be a really bad move.
 
Yes, UBTI issues effect Roth IRAs just like any other IRA.

Why people would put the tax advantaged distributions from MLPs in an IRA instead of taxable is beyond me. It's like the people who try to buy houses with their self-directed IRA so they can give up tons of RE tax breaks for individuals and pay big fees for a special IRA custodian.
 
MoreLeverage said:
Yes, UBTI issues effect Roth IRAs just like any other IRA.

Why people would put the tax advantaged distributions from MLPs in an IRA instead of taxable is beyond me. It's like the people who try to buy houses with their self-directed IRA so they can give up tons of RE tax breaks for individuals and pay big fees for a special IRA custodian.
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when it comes to taxes, I need to read more and post less. Robert was in the business before I started trading and is very respected.

But I hear ya. I had to put my folks in the rest home and sort through their finances. They have an annuity in their IRA.
 
So apparently as long as your gross income in a Roth from UBI is <1K$, you needn't file 990t, or be concerned. Just keep your gross MLP income in Roths under 1K.
 
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