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Inergy, L.P. Message Board

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  • lizahuang54321 lizahuang54321 Mar 27, 2012 6:38 PM Flag

    HELP!! with K-1 - PLEASE!

    Having it in an IRA makes the tax prep easier (or eliminates it) but then you lose the tax advantages. Why put a tax shelter inside a tax shelter? It's a waste of a perfectly good tax shelter.

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    • >Having it in an IRA makes the tax prep easier (or eliminates it)
      >but then you lose the tax advantages. Why put a tax shelter inside
      >a tax shelter? It's a waste of a perfectly good tax shelter.

      I am thinking you are picturing holding two different investments, and you are comparing putting the corporation stock into the IRA and the PTP outside of the IRA, vs vice versa.

      Another comparison is to say that you have an IRA and you are choosing whether to buy corporation stocks or PTPs in the IRA. In each case, there are good reasons to choose the PTP in the IRA if you *presume* you can avoided UBTI tax.

      Let's contrast holding a corporation vs a PTP in an IRA. Presume for this, a corporate tax rate of 34% and dividend tax rate of 15%, a CG rate of 15%, and a personal tax rate of 28%. Presume that markets are efficient, we neglect inflation and a host of other things, and that stock values increase by after-tax income minus dividends/distributions.

      For the IRA containing the corporate stock, there is a still a 34% income tax to be paid. There would be as little as 0% income tax on the PTP. Both are subject to 28% income tax upon withdrawal if the IRA is not a Roth.

      Outside the IRA, the corporate stock faces tax of 34% + 15% for a net of 56.1%. The PTP eventually faces income/distribution tax of somewhere between 28% and 15%; those taxes are either/or for various pieces. If you presume that the post-retirement tax rate is much smaller, then the PTP gains an extra advantage. But you know that presumption is not always true.

      I am sure I have oversimplified and over-presumed. But my point is that putting PTPs into an IRA is not in the same category as putting munis or annuities into an IRA. I think that PTPs can be a nice component of an IRA, even before the simplicity is considered.