IRA ETF’s and Unrelated Business Income
Our clients are receiving K-1 forms for the ETF’s in their IRA accounts. It appears that if Unrelated Business Income exceeds $1,000 then the client may owe tax, even though the investment is in an IRA. Does this sound correct?
Permalink Submitted by mk foss on Mon, 2011-02-28 18:21
The client does not owe tax on an IRA investment, the IRA owes tax. The tax must be paid by the IRA not the IRA owner. A tax return must be filed (990-T) but that is the custodian’s obligation. If investments throw off more than $1,000 of UBI – the custodian must be notificied because they don’t receive the K-1 forms.
Are you sure the K-1s are coming from ETFs? Ordinarily it’s publicly traded paretnerships that generate K-1s; ETFs just pay dividends.