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Enterprise Products Partners L.P. Message Board

  • I am considering EPD as the first MLP I have ever invested in. I am wondering if there are any concerns with putting an MLP such as EPD in an IRA? Is the distribution still completely free from taxes if held in an IRA?

    Additionally, I have been reading a bit about the state tax issues with MLP's and wonder if anyone can summarize this risk/concern?

    Last question--I assume that in taxable investment accounts, the MLP distribution is taxable NOT at the favored "qualified dividend" maximum rate of 15%, but rather,as is my belief about REIT dividend income as well, the MLP distribution would be considered "non-qualified" dividend income and taxed at a higher, normal income tax bracket.

    Any help would be greatly appreciated!

    Thanks,

    dabqs

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    • Closed End Fund....see PTY for a good example...

    • qding76,

      I have been reading this link
      http://www.ptpcoalition.org/MLP%20Primer%20Sept%202005.pdf,
      which was written by the Wachovia Research Department, and which was provided to me from a board member here (Thanks!). It has been updated last in August 2005. I believe I just read last night that there is some legislation in progress which would eliminate the UBTI problem for holding MLP's in IRA's. HOWEVER, here is a direct quote from the extensive (44 pages of information!!) link,

      "There is potential legislation that would allow traditional IRA's (this would not apply to Roth IRA's) to invest in MLP's without being subject to UBIT."

      So it seems that even if legislation paves the way for traditional IRA's to hold MLP's and avoid the UBTI problem, the UBTI issue would still be in place for MLP's held in Roth IRA accounts.

      Hope that helps.

      dabqs

    • What is a CEF?

      Thanks,

      dabqs

    • That's a great question, and I hope somebody can answer it for you. What I THINK (as opposed to KNOW) is that the problem with UBTI will be exactly the same in a Roth as in a standard IRA. But I am not a tax expert - so get an expert's opinion. Good luck.

    • The IRA pays the tax. It is a moronic tax. Let's hope congress gets rid of it for an IRA. The tax was aimed at injstitutions like clubs that were engaged in businesses to make a profit to cut down on need for dues. Ie it was aimed at people abusing their nonprofit status. unfortunately it hit IRA's.

    • Ooooh... and if you don't substitute, I guess the Motleys were right. Hmmmm. I never noticed that K-1 line 1 and 20-P might match.

      So what is it that makes this income/loss unrelated? Silly question. I was trying to apply logic to a tax rule.

      And is the "loss" something that tends to go away after you have exhausted your basis? If so, the strategy would seem to be to sell off the MLP before that if you were in danger of hitting the $1000 threshhold.

    • Fox,

      Maybe not, substitute the word "distribution" for "income" and I'd say you were right.

      Jay

    • Thanks for the research and link. I think we can agree that the Motley Fool article has some deficiencies. When they say "As you may have guessed, most income from MLPs is classified as UBTI", it makes the whole article suspect.

    • I was incorrect in my earlier post. Your question sent me searching for a citable answer, and I found one. An article in Motley Fool says:

      "...know that your IRA is typically subject to UBTI only if you receive more than $1,000 in UBTI per year (across all IRAs that you hold)."

      source: "Tax Tips for Income Investors", Motley Fool, March 28, 2005.
      www.fool.com/news/commentary/2005/commentary05032802.htm

      While I don't think that Motley Fool articles are the ultimate source, it is a pretty clear statement. The UBTI $1k limit appears to apply to the total of all IRAs.

      My apologies for being incorrect. I am always trying to learn more about the topic of MLPs in an IRA.

    • http://www.irs.gov/instructions/i990t/ch02.html#d0e2741 has some info. The rates appear to vary from 15% to 35% depending on amount. I see this table in that link:

      Tax Rate Schedule Trust (Internal Revenue Code - Section 1(e))
      If the amount on line 34, page 1 is:
      Over� But not over� Tax is: Of the amount over�
      $0 $2,000 15% $0
      2,000 4,700 $ 300 + 25% 2,000
      4,700 7,150 975 + 28% 4,700
      7,150 9,750 1,661 + 33% 7,150
      9,750 - - - - - 2,519 + 35% 9,750

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EPD
39.38+0.06(+0.14%)Aug 22 4:05 PMEDT

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