First, you can dismiss UBTI for Linn in an IRA. They, as do most MLPs, have losses which can be carried forward for 20 years. (Read the IRA pubs.) My LINE UBTI is close to -100K after several years of holding lots of company units..
Second, if you sell in an IRA ,the total sum received remains there for reinvestment. But in a regular account you're stuck with taxes on all your deferred distributions.
Third, don't trust the Seeking Alpha blogs. Re taxes in an IRA some bloggers (and even more reader comments) confuse a tax-deferred entity (an IRA) with non-taxable entities.
Fourth, in a regular acct. when your cost basis reaches zero, you pay ordinary income tax on all further distributions. Not so in an IRA. You simply ignore it.
But in a regular account you've got the K-1 complexities to deal with. However, in an IRA, because the trustee (your broker) is responsible for any potential UBTI payments, you've got to let the tax dept. know about your carryforwards should you have to use them. (Hasn't happened to me yet, but I'm ready.) So any talk of "wasted" deferral is an oversimplification. I personally don't want deferral in a regular account with a big hit at the end. I prefer high IRA income and have no problem paying taxes on the small portion of the IRA total that I remove every year because I'm an old guy.
And, finally, where you place your MLPs is not cut and dried. It depends on what you financially want and are comfortable with. So the term "wasted" I think is a specious one-size-fits-all assessment.
some of the benefits may be wasted.... BUT it still avoids the double taxation issue with C Corps.
Can you imagine how much more productive everybody would be if Corps were allowed to deduct dividends from corporate profit. Of course that would negate most of the need for mlps and reits but still it may even encourage US corps to move money back from offshore and pay some of it oiut in dividends.
Maybe it would even encourage the market to become a bunch of investors instead of hit and run traders, since corps might provide a decent returns.
"Fourth, in a regular acct. when your cost basis reaches zero, you pay ordinary income tax on all further distributions. Not so in an IRA. You simply ignore it."
I thought this was ordinary income, BUT Liza says its LTCG.
so which is it ?
You missed out one other advantage of having them in an IRA and that is the ability to trade around your position (if you like to do that sort of thing) by adding a bit when price drops and trimming when the price rises. In a taxable account, the tax issues rule that out most of the time.
But I am in the 'wasted' camp. The reason is that I have assets in both taxable account and IRA. I keep MLPs and trusts which have built-in deferral in the taxable account and pay very little tax on my income. In my IRA I hold other investments which have no built in deferral. Put them together and I have tax deferral on all my investments in both taxable and IRA accounts.
Yes, there are other considerations, but to take full advantage of the benefits of MLPs and to minimize current taxes (which gives you more powerful compounding), the taxable account is the way to go.
I only trade in an IRA, used to have a 401K, but when I retired IRA was less expensive to make distribution and no tax withheld. I keep my distribution in order to minimize taxes or even eliminate taxes. The last time I used an accountant to do my 1040, his cost was many times the UBTI. You have to balance the cost of investing; trading from within an IRA fits me, thank you!
If actively trading then the recapture at ordinary rates is small.
A tax deferred asset in a tax deferred wrapper is simply a 'waste' of a good portion of the value of the security.
Not to mention long term retirement accounts should have lower risk assets and be completely diversified. That is the correct application of compounding returns.
Swinging for the fences or actively trading in a tax deferred account is a double edged sword. No write off of a capital loss.
But then again why deal with math and portfolio concepts when Lisxa has occult powers when it comes to investments like the rest of the OLB.
On it goes. All that is missing is Ron^3 thanking it for such enlightened contribution.
Progressive flat, dark and cold Middle Earth led by Obama. Progressive dogma is not science. Just look at Obama's Corn Ethanol Corruption. No one wants it as all understand it is the most expensive crony capitalist give away in the history of America. The most economically and ecologically damaging insanity ever.
An IRA is not a trading in and out of type of an account. Every now and then is fine. But they get upset if you trade in and out of an IRA account too many times. It is not a day trading swing trading type account.
Here is what I say do what ever you want to do. We have smashed this subject to oblivion. When opening up your IRA ask the person you are working with if it is worth putting a mlp in an IRA. Pretty simple.............