memp
Re: memp
Just a personal choice and then I don't have to mess with the k-1's at tax return time. Keep in mind that the non-taxable portion of cash distributions from MLPs is deferred "ordinary income", which must be recaptured as ordinary income when you sell them. The benefit of capital gains treatment is lost in an IRA, so most of the "Growth Stocks" are in my regular accounts.
My taxable accounts are more for trading and trading MLP units can result in a record keeping nightmare.
Most people buy and hold MLPs, but it is amazing to me the high trading volume on MLPs like HCLP.
Keep point here is that there is nothing keeping you from owning MLPs in your IRA accounts.
My taxable accounts are more for trading and trading MLP units can result in a record keeping nightmare.
Most people buy and hold MLPs, but it is amazing to me the high trading volume on MLPs like HCLP.
Keep point here is that there is nothing keeping you from owning MLPs in your IRA accounts.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: memp
Seems a little backward to me. True, K1s are a pain in the butt. If you use an accountant, as I do, you must invest enough $ in each to generate enough income from each to warrant the add'l cost of having the accountants mess with them.
As to trading, why trade in a margin acct, and incur maximum tax cost (I assume you make money) when, if done in an ira, you incur none? All my long term holds are in my margin acct, including MLPs, and my ira is used for trading.
As to trading, why trade in a margin acct, and incur maximum tax cost (I assume you make money) when, if done in an ira, you incur none? All my long term holds are in my margin acct, including MLPs, and my ira is used for trading.
Re: memp
One of our members (a financial advisor) sent me this e-mail:
Dan;
A couple of additional comments on the IRA issue:
MLPs can be held in IRAs and other nontaxable accounts as long as the UBTI doesn’t exceed $ 1000 per year. This may limit the amounts that are invested in an MLP. [Just to clarify: If the net UBTI goes over $1,000 the custodian of the IRA (i.e. Fidelity, E-trade, etc.) is responsible for filing the Form 990T. You may have to pay some tax, but it does not disqualify your IRA. - dan]
Upstream MLPs are less likely to generate significant UBTI than midstream MLPs because of the IDCs and depletion.
Midstream MLPs are generally sheltered by depreciation in the early years, however, if you own PAA or EPD that was purchased early on, you are likely to have an UBTI issue.
My real concern is the “recapture” of depreciation when the units are sold in the nontaxable account. You could remain below the $ 1000 threshold for many years only to exceed it due to recapture on sale.
My conclusion is that the potential problems are not worth the inconvenience and expense of filing the 990. Everyone should definitely consult their CPA or tax attorney before investing. I am happy to discuss this with you.
Dan;
A couple of additional comments on the IRA issue:
MLPs can be held in IRAs and other nontaxable accounts as long as the UBTI doesn’t exceed $ 1000 per year. This may limit the amounts that are invested in an MLP. [Just to clarify: If the net UBTI goes over $1,000 the custodian of the IRA (i.e. Fidelity, E-trade, etc.) is responsible for filing the Form 990T. You may have to pay some tax, but it does not disqualify your IRA. - dan]
Upstream MLPs are less likely to generate significant UBTI than midstream MLPs because of the IDCs and depletion.
Midstream MLPs are generally sheltered by depreciation in the early years, however, if you own PAA or EPD that was purchased early on, you are likely to have an UBTI issue.
My real concern is the “recapture” of depreciation when the units are sold in the nontaxable account. You could remain below the $ 1000 threshold for many years only to exceed it due to recapture on sale.
My conclusion is that the potential problems are not worth the inconvenience and expense of filing the 990. Everyone should definitely consult their CPA or tax attorney before investing. I am happy to discuss this with you.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: memp
Correct about "recapture." I think younger people, who expect to hold their mlps for a long time, should become familiar with this dynamic. As an older investor, I expect to have the mlps in my portfolio when I go toes up, so recapture does not concern me.
I don't know if I missed a discussion, but readers should be familiar with parent companies of mlps, such as KMI, and ETFs such as the Alerian Index, which issue 1099s instead of K1s. Makes life easier, and they can be held in iras as well. You lose a bit of yield, but avoid headaches.
I don't know if I missed a discussion, but readers should be familiar with parent companies of mlps, such as KMI, and ETFs such as the Alerian Index, which issue 1099s instead of K1s. Makes life easier, and they can be held in iras as well. You lose a bit of yield, but avoid headaches.