IRA’s subject to Unrelated Business Income Tax
Here’s the question as it was presented from the client… “Are you aware of IRA/Roth investments being subject to the Unrelated Business Income Tax for annual production income as opposed to capital appreciation? In alternative investments, the IRS apparently tries to apply their rules for charitable organizations to IRA’s if they produce operating income that might compete with other for profit entities that would be taxed on such income. Presumably the purpose for any IRA/Roth investments is to earn a profit on them—hardly “unrelated”! I’ve never heard of a tax on any IRA/Roth investments in publicly held companies for operating, dividend, or capital appreciation. Any enlightenment for me?”
Does anyone have a spin on this?? Thanks!
Permalink Submitted by Alan - IRA critic on Mon, 2014-07-07 17:02
UBIT on IRAs is increasing because more taxpayers have opted to place alternative investments in their IRAs in recent years. Certain real estate and MLPs produce UBIT, but usually it takes a fairly large position to generate the 1,000 in UBIT, which is the threshold above which the IRA must file Form 990 and pay the tax. Some large brokers and discount brokers will take care of doing the filing and tax the tax from the IRA account as required. Here is an article on the subject: http://financialducksinarow.com/4078/ubti-in-an-ira/
Permalink Submitted by Daryl Phillips on Mon, 2014-07-07 19:23
That’s very helpful…thank you!