I am considering purchasing an MLP in my Roth IRA. I first assumed I would be tax free upon withdrawal, but after doing some research, found out that MLPs distributions are can be considered unrelated business income, and subject to tax even in IRAs.
Does anyone have experience with this inside of a Roth IRA?
MLPs have tax advantages if you hold them directly AND tax disadvantages if you hold them in an IRA. If you end up having to file a return (which is based on GROSS UBTI), your IRA custodian is going to charge you an arm and a leg. Why not hold your MLP's directly instead?
But doesn't it make sense? It will not be taxed as long as the amount of unrelated business taxable income is greater then $1000 in any one given year. So if I owned $5000 worth in shares (or units as MLPs call it), I should be alright.
Or maybe I am just better off leaving my ROTH IRA to highly taxable stocks, ETFs, etc?
I am new to MLPs and want to fully understand them before buying in.
thanks
markkundinger
Senior Member - 2K
posted: Jan. 9, 2008 @ 11:26p
The usual recommendation for tax-deferred accounts is tax-inefficient things like bonds, REITS, and high turnover stock funds.
LH2004
Frivolous Member
posted: Jan. 9, 2008 @ 11:37p
Your IRA will not owe any UBIT if its net UBTI is under $1000. But it will have to file a return if its gross UBI is over $1000. You will have a headache if you have to file a return. I agree that, with just a $5000 investment, you are unlikely to have $1000 of gross UBI -- though you might be close, as the things that keep taxable income down (depletion, depreciation, compensation expense) don't affect gross income.
As a general matter, you want to use your IRA to hold whatever would generate the most tax if you held it directly. MLP's are just a low priority for that, even if they don't generate any taxable income for the IRA.
isobro said: Awesome, thanks guys. I will probably hold the MLP in my taxable account.is there any particular reason why you are convinced it is worth investing in a MLP?
I have had an MLP (I know in my above post I mentioned I was new to them, but I meant I was new to them when it comes to having them in taxable accounts, sorry for any confusion) since 2002 and it has done very well, it has appreciated steady and also provided decent distribution of income. Including distributions and appreciation it has doubled in value. Doing more research, I believe it and others will continue to do well. I would like to increase its percentage in my portfolio.
310guy
Member
posted: Feb. 23, 2008 @ 1:14p
I also am researching this topic, & was wondering what MLP you are looking at for your Roth IRA. I also agree with you & believe they (mostly energy investments) will continue to do well...
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