I've suspected for years that these MLP's do little to nothing for my tax situation. So, due to some nice enhancements in TurboTax, I took a good look at them.
Three individual returns. None with W-2 income, one with retirement income, two with only investment income. Two are middle income, one is high income. The former two did not trigger AMT, the latter did.
I filled in all income items (including that from the MLP's) and jotted down the tax hit. I then added one MLP K-1 at a time (each individual had 10 MLP's) and looked at the tax hit after each K-1 was entered.
The results are the person with retirement income had a higher tax bill after the MLP's were entered. The middle income person, all investment income, had no impact. The high income individual had higher taxes after the MLP data was entered.
So, what's the story. Are these MLP's only good for those with W-2 income?
Seems like a lot of effort to go through for a decent (though not unique) dividend rate offset by a higher tax bill.
Well, here's the rub bunkie. If you're looking for capital gain, and some stability, and proceeds from option sales, you go with the benefit those provide and forego the tax issue.
What goes in your IRA is not what is mathematically the best versus the rest, it is what is best versus the RISK and the dividend plus cap gain and or the option sales income.
I'd rather have a six percent divvy in my IRA that is also generating about 15-18% in option premium, in an industry which has a tomorrow attached to it than all the untaxed advantage blowhard drivel out there.
If I want to hold MLP in my portfolio because of the concept "it's all good" and I forego the tax advantage in my IRA because it is a better investment, well, there is always my cash account, and I can buy more there.
So what would happen if - unbekownst to me at the timethat it was prohibited - bought BWP in my Roth IRA? I can go to Schwab right now and buy any stock on the exchange in my Roth if I care to.
When would it be caught?
What happens to any capital gains in the meantime (assuming there would be some)? Would I pay a penalty? If so, to who?
Because the account is titled in the name of the administrator and ROTH IRA is in the account headline.
A reminder that Congress again is looking at restrictions on what holdings are appropriate for a ROTH. The word I am getting is there will be a likely ban on purchase of tax exempt entities (Munis, REITs, MLPs etc.) by ROTHs. The idea is not allowing a tax emempt entity to purchase tax exempt entities thus totally avoiding taxation.
This one is actually logical to me.
These are ETFs?
Tortoise MLP Fund 3,571,160 2.03 103,920,756 May 31, 2011
TORTOISE ENERGY INFRASTRUCTURE CORP 2,296,700 1.31 66,833,970 May 31, 2011
Tortoise Energy Capital Corporation 961,400 0.55 27,976,740 May 31, 2011
Alps ETF Tr-Alerian MLP ETF 797,374 0.45 26,042,234 Mar 31, 2011
Steelpath MLP Select 40 638,916 0.36 18,554,120 Jun 30, 2011
Nuveen Energy MLP Total Return 620,187 0.35 18,010,230 Jun 30, 2011
Cushing MLP Total Return Fund 600,000 0.34 17,424,000 Jun 30, 2011
ClearBridge Energy MLP Fund Inc. 398,632 0.23 11,576,273 Jun 30, 2011
MLP & Strategic Equity Fd 384,804 0.22 11,174,708 Jun 30, 2011
Tortoise North American Energy Corp 297,500 0.17 8,657,250 May 31, 2011