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Magellan Midstream Partners LP Message Board

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  • factoids2002 factoids2002 Dec 18, 2009 4:38 PM Flag

    Is MMP Suitable for Individual Investor's 401k?

    From Raympnd James primer on page 12:
    "One of the most attractive features of MLP income is that it is already largely tax-deferred, so there is no need to put it into an IRA to receive the tax benefit.
    Buying MLPs in an IRA would be similar to buying tax-free municipal bonds in an IRA – you would not benefit from the benefit. The most compelling reason, however, is that IRAs are subject to federal income tax on unrelated business taxable income, or “UBTI.” UBTI is income earned by a tax-exempt entity (such as an IRA) that does not result from tax-exempt activities."

    From the Alerian Primer on page 13:
    "Retirement accounts and other tax-exempt investment vehicles are also restricted in their ability to invest in the sector because MLPs generate UBTI. If UBTI exceeds $1,000 for a tax-exempt entity, investors may be liable to pay taxes on that income. "

    I can see how it could be, that IF the tax were on distributions, then withdrawal of those distribution could change the tax treatment. But if the tax is on UBTI, then how can withdrawing the distributions from the IRA change anything? All MLP produce K-1's with UBTI numbers. How does the K-1 producer even know the units are in an IRA and being withdrawn? It is my impression from the UBTI data base that UBTIs are being credited to you much more frequently than once per quarter. So would that not also mean that you are being hit with UBTIs even BEFORE you get your distributions?

    Please provide links to the sources of your information as I have provide links to mine.

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