I recently purchased 9400 shares of APU for my roth ira as I've had this stock for a few years and really like it. I figured it be a good long term stock because of its dividend. However I just found out about MLP's and UBIT's and i'm really confused.
I've been trying to read up on it as much as I can but I'm still dont' get what the tax problems would be. I seem to be seeing alot of people writing about how MLP's are not good for roth ira's because of tax purposes, why is that?
I thought that since its a roth ira and the money has already been taxed what I make on this stock would be tax free when I retire at 65. Can anybody help me in layman terms? I originally was going to invest my money in coke and might go back to doing that as it seems much simpler.
Just read your post. I had 1500 shares in my IRA. Roth doesn't matter. What matters is that there apparently has been an IRS law on the books regarding MLP's in IRA's. Somebody has to pay uncle. The MLP doesn't because of their tax structure. You pay your share of their business tax (UBTI) because you are technically a limited partner. The longer you hold it, the worse it gets. The profits accumulate as can be seen on your K1 (Don't throw the K1's away year to year when you own these). Your dividends are not what is taxed. One day in March you are going to hear from your Roth custodian. You won't like what you hear and there isn't anything you can do about it. The custodian pays the taxes for you with your funds or sells your stock if the funds are not available. I got nailed in 2010 pretty good, enough that I sold the stock and purchased it in my Personal Account. Theoretically, it could wipe out your entire investment. I am not an accountant, just an unfortunate middle class tax paying citizen that gets what middle class always gets, especially since 1/09.
Best to check IV message board on MLPs. But, MLPs held in IRAs you need to look at line 20v on K-1, UBTI. If that amt EXCEEDS $1000 then your custodian needs to do the paperwork and pay tax on the amt that EXCEEDS $1000.