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  • factoids2002 factoids2002 Dec 16, 2009 2:43 PM Flag

    Is MMP Suitable for Individual Investor's 401k?

    dontowenothin wrote "If you are taking distributions from your IRA, there should not be any problem with the distributions from an MLP. Just as long as your IRA distributions equal or include within them the dollar amount of the MLP dividend."

    I have previously given links to the MLP primers [if that link is needed again - see]. The primers come from legit sources - Wachovia, Allerian Capital [the makers of the AMZ index], Merrill Lynch, and Raymond James. Every single primer mentions that fact that MLPs in IRA produce UBTIs - and UBTI over $1,000 triggers a tax on the total amount of your UBTI - and it is not dependent on whether money is kept in the IRA or withdrawn.

    I have yet to see any mention that withdrawals from the IRA would have any effect on the taxation of UBTIs. If dontowenothin has a source for this claim that IRA withdrawals has the effect of escaping UBTI taxation, then dontowenothin should provide a link to his information, just as I have provided a link to my sources of information.

    Dontowenothin - I hope you are right - because this would be great news. But there are logical reasons for me to believe you are wrong - besides the fact that the primers are in disagreement with what you believe to be the case. Your statement would imply that the taxation of MLPs is based on their distributions. But outside an IRA, the taxes are NOT based on the distributions. So - using logical [and using logic is a dangerous thing to do when it comes to taxes] - why would the taxation of MLPs inside an IRA be based on the distributions?

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    • I agree that the MLP tax structure might incur more taxes, within an IRA or 401K ( if one were to reinvest the distributions).If one receives #1K or less distributions , then these distributions have no other tax consequences than normal IRA distributions.
      The deferred gain of an MLP may preswent some additional tax problems because of return on capital within the distribution . That is a very touchy thing because it woukld involve double taxation. The return on capital in the lump distribution has already been treated as ordinary income.the trick not to get too many shares of any one MLP in an Ira account to trigger the over $1k distribution.

      • 1 Reply to dontowenothin
      • Dontowenothin wrote: "the trick not to get too many shares of any one MLP in an Ira account to trigger the over $1k distribution."

        First - thanks for withdrawing the claim that distributions from an IRA reduce one's UBTIs.

        Second - you are still making the error that you would be taxed on DISTRIBUTIONS of the MLPs in your IRA. One is taxed on the UBTI. I have provided the link to the data base posted on the Investor Village site - and that shows that UBTI for holders of MMP units has been larger than the distributions for long term holders of MMP.

        Third - you appear to claim that the $1,000 exclusion is 'per MLP'. I have the impression that the exclusion is 'per IRA'.

        Fourth - you are correct that the taxation of UBTIs within an IRA "would involve double taxation".

        Fifth - the mostly accurate article - to which you provided a link - states that "The distributions that an individual that holds a master limited partnership in an individual retirement account receives could be considered unrelated business taxable income subject to taxation." Once again, distributions are not the same thing as UBTI. And that article even contradicts itself by later stating that "Some like Kinder Morgan (KMP) have even had a negative UBTI in some years". Why would negative UBTI matter if one is taxed on distributions?

        Sixth - That same link stated "As long as the UBTI from all MLPs in an IRA does not exceed $1000 in a given year, your partnership distributions won’t be taxed."

        Summation - we are still in disagreement on some minor points - but these minor points could have a major impact if one is wrong about them.

        Thanks for your feedback;
        Bob a.k.a. Factoids

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