KMP is VERY UBTI-friendly, which makes it an excellent candidate for holding in an IRA. KMR, the non-identical-twin-sister of KMP, may even be better (but its a close call).
KMP also is very tax-friendly when held in a regular account; almost all of the annual distribution is not taxed in the year you get it. It is a great candidate for reinvesting the distributions...the tax shield (i.e., the tax postponement features) will last forever.
However when you sell KMP in a regular account the tax bill comes due. This is an over simplification, but when you sell in a regular account you will end up paying income tax on something close to the total of all the distributions you have received (which are income, and you have never been taxed on before).
IMHO that makes owning UBTI-friendly MLPs a suitable candidate for owning in an IRA of any flavor. My goal in my IRAs is to have a portfolio that will give me a very good risk-adjusted long run total return. MLPs have helped enormously towards that goal, even though I am giving up all of the tax shield advantages by holding in an IRA.
The annual rates of return for the MLP sector have been compelling...even when ignoring the tax shield. All the following data is the average total return of the Alerian MLP index (largest 50 MLPs, weighted by capital value) with reinvestment of the distributions. All are the average annual returns (allowing for compounding in multi-year periods) in the period specified:
2011 (YTD): -2.4% (S&P500 = -2.23%) 2010: 29.0% 2009-2010: 40.6%/year 2008-2010: 13.9%/year 2007-2010: 13.6%/year .. 2005-2010: 14.2%/year .. 2000-2010: 18.6%/year (S&P500 = -0.49%/year over the same period)
So you are willing to lose the tax deferment now for the privilege of paying higher taxes later?
All you have to do is buy a few more shares each yer (or use DRIP) and you never reach a zero cost basis.
When you start to receive distributions from your IRA you will pay taxes on everything you earned, regardless of whether it was deferred earlier. So either pay zero now (and potentially forever), vs. 28% (plus state taxes)down the road.