K-1 Income within an IRA
I have an IRA that held a small amount of an ETF that invests in commodities. I just received a K-1 statement from the IRA custodian showing what appears to be taxable income that was generated from that ETF. I’ve always known that IRAs are tax-deferred, but I vaguely remember reading somewhat that in certain circumstances, K-1 income is taxable even if it is generated within an IRA. Is this true?
Permalink Submitted by mk foss on Mon, 2011-03-07 17:37
An IRA investment can generate unrelated business income (UBI) and owe unrelated business income tax (UBIT). If the UBI exceeds $1,000 – a return must be filed. In that case, you should contact the custodian (they don’t receive copies of the Schedule K-1) so a return can be prepared. Any tax due must be paid from the IRA. If the K-1 shows a loss as the UBI retain the copy and furnish it to the custodian when UBI exceeds $1,000. The loss may be deductible against the later income.
Permalink Submitted by Alan Spross on Mon, 2011-03-07 17:56
They may have changed the k1 this year. It appears that any UBTI would be in Box 14, Code H and require further notation from the issuer. Does your K1 have an entry such as this?
Permalink Submitted by Scott Brady on Thu, 2011-03-10 02:06
No entries in Box 14 on the K-1. There are entries in box 5, 8, 9a, 11, and 13. The entry in box 11 is coded C. The entry in box 13 is coded K. One accountant I spoke with told me I can ignore this form altogether since the shares are owned within my IRA. However, I’m reluctant to do so until I know for sure. Any information you can provide on this would be greatly appreciated. Thank you in advance.
Permalink Submitted by Alan Spross on Thu, 2011-03-10 03:37
No sign of any UBTI there, so no action is required this year. As Mary Kay indicated, if you have a loss in any boxes, it may be useful in the future. Otherwise, just file it in your IRA file for a few years in case you need to reference it later.
Permalink Submitted by Daniel Deagle on Thu, 2015-10-15 21:29
I have a client who receives a K-1 (Form8865). His interest is an investment by his SEP IRA. The K-1 shows an ordinary loss, so no 990T would be required on that. However, there is over $10,000 of capital gain income.Should a 990T be filed for UBI for the capital gain?Also, there are distribuitons showing of over $50,000. The distribution was confirmed that it came to him personally. Should the distribution be taxable and where and how should it be reported on the SEP owner’s Form 1040? Look forward to your answer. Dan