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Anworth Mortgage Asset Corporation Message Board

  • dinmke2 dinmke2 Mar 17, 2010 9:38 PM Flag

    UBTI- why can't own in IRA

    First of all, all IRAs are treated the same when they get untaxed income MLP or REIT dividend income. Such income is considered unrelated business taxable income (UBTI). The UBTI rules apply to all qualified retirement plans, not just traditional IRAs. If an IRA earns UBTI exceeding $1,000 it must pay income taxes on that income. The IRA trustee (i.e., your broker) might have to file Forms 990-T or 990-W (expect a nice surcharge for the favor. It also must pay estimated income taxes during the year if the UBTI exceeds $500.

    Since UBTI dividends are not taxed at the busienss level (REITS are partnerships that do not pay tax) The IRA owner (you) will be taxed twice on UBTI (Your trustee pays at the corprate rate on the income and you have to pay again in your tax return). In other words, the IRA (trustee) will be taxed on the income. Subsequently, the owner or beneficiary (you) will be taxed on distributions of that income. There is no deduction or credit available to the owner for UBTI paid by the IRA, and the tax on the IRA does not increase the tax basis of the IRA.

    Many people do not follow these rules but just wait until you get audited and with back taxes penalties and interest say goodbye to your retirement portfolio.

    Go to the IRS ( and search for the IRS publication on IRAs). It is amazing to me that everyone on these boards is an "expert investor" (especially since nowadays anyone with $10 bucks and a computer can open a brokerage account) they give others investing advice and yet its all wrong. The amount of pure stupidity dealt on these boards is amazing.

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    • Mr. dinmike2, you might find it helpful to brush up on your manners when posting on message boards in general. Common courtesy is expected and sometimes people question your real motive for writing. BTW, here is a little something for you to read........

      >>>>25.What is "Unrelated Business Taxable Income" (UBTI) and can REIT dividends constitute UBTI?
      In very general terms, "unrelated business taxable inclome" or UBTI is income earned by an otherwise tax-exempt entity that is considered taxable income to the entity, typically because it is dervied from a business activity unrelated to the tax-exempt purpose of the entity. For example, an "individual retirement account" or IRA is typically considered tax-exempt, but if it earns UBTI, it must pay tax on that income.

      In general, REIT dividends do not generate UBTI (at least no more than dividends from non-REIT stocks). See Revenue Ruling 66-106, in which the IRS specifically held that dividends from a REIT generally do not generate UBTI. Nevertheless, there are exceptions to the general rule, such as when a pension plan owns more than 25 percent of a REIT's stock and in the case of certain mortgage REITs that use financings considered to be "taxable mortgage pools."

      Because the answers to these questions are complex, it is important to consult with a competent tax advisor for answers applicable to your specific situation.<<<<<<<<<<

    • srmedusa Mar 17, 2010 11:39 PM Flag

      Not true for a Roth IRA.

      "I made an error of inductive logic myself when discussing MLPs in Roth accounts. In my experience, spanning nearly 40 years and 20 or 25 MLPs, I’ve never had a client hit the upper limit of $1000 of Unrelated Business Taxable Income (UBTI). But we all need to know that it “could” happen. Having discussed it this week with 2 CPAs and 3 MLPs, I can report that all that will happen is your CPA or tax prep software will advise that you need to pay taxes on the amount received if you exceed $1000 in UBTI in any given year. The reader who said they had read that if you made over a $1000 a year in UBTI, “you could lose the Roth IRA status and have to pay taxes on your whole account!” was misinformed by someone masquerading as knowledgeable. Your Roth is secure. "

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