Here *now* I only only MLP (Master Limited Parntership) stuff like ARLP in my non IRA taxable accounts. After reading a mess of stuff about MLP and taxes I really did NOT want any complex tax stuff. ie where if one hits more than 1k in Unrelated Business Taxable Income-UBTI to fool with. My CPA who does my business and not my personal stuff said there is little issue. But then maybe he is clueless or I am a buffoon for doing my own research. I believe in simple understanding of the taxes I pay; and not some convolved mess. I read where if one like me is less than 59 1/2 that that UBTI tax triggers a premature IRA withdrawl; since that tax is paid out of the IRA. This sounds like a bunch of beancounter headache to keep track of and a mess to me.
Thanks Liza. I just wish I knew as much about in vesting as I do about taxes.
And Hugh (maybe), I didn't take your comment as an argument, just the start of a conversation. But on the Yahoo MLP boards, there is 1 subject that tends to start fights - suggesting that MLPs might create a UBT exposure. Most of the arguments involve "I've been doing this for x number of years, and the IRS hasn't challenged me, so there can't be a problem." So I just point out the issue, suggest ways to avoid it (buy corporate GPs, buy MLPs and hold forever (not my favorite, after 2008/2009), buy ETFs and CEFs that invest in MLPs, and so forth), and duck.
Your comment wasn't argumentative, and I didn't take it that way.
Had the same fears, but ran across an article that showed that this tax situation probably wouldn't be triggered until you had about 10,000 shares in an IRA. I have about 500 in an IRA and never have trigered any tax, using TurboTax to file. Your accountant should be able to tell you which distribution in the K-1 will cause this situation and about how much you can safely hold in your IRA.
Lots of people own MLPs in their IRAs, and I don't think the tax issues have been significant, based on what is posted on these Yahoo boards. Most MLPs don't generate positive UBTI from normal operations. But there is a real tax issue, usually when you sell an MLP after owning it for a few years, where your gain (hopefully you have a gain!) can be subject to the UBTI tax.
I also avoid MLPs in my IRA, and there are some fixes you might want to consider. First, there are some corporate GPs that trade as stocks, such as TRGP, KMI, XTXI and some others. They basically pass along the MLP distributions as regular dividend income, so there's no UBTI issue. Second, some trusts, such as CHKR and PER (among others), are taxed as partnerships, but they have an opinion from counsel that their income does not constitute UBTI. Basically, it's because the trusts are passive and don't conduct anything that the IRS might view as income. So they should be safe investments for an IRA (safe meaning not generating UBTI, not safe as in safe investments economically). Then there are ETNs/mutual funds and similar investment vehicles that invest in MLPs, but are structured as corporations (or debt investments) so they don't generate UBTI. Those funds have their own set of investment issues, but they generally avoid the tax issue.
Hope this helps. You don't have to avoid MLP-based investments entirely in your IRA.
Everyone's wil lbe different, but mine was negative, so it was a non-issue. It was a little more to deal with (the K-1, that is) but I have someone help me with my taxes anyway so I just let them mess with it.