Yes, you can invest in a master limited partnership (MLP) for your 澳洲幸运5官方开奖结果体彩网:Roth ind🌃ividual retirement ac♔count (IRA), but you’ll ne✨♈ed to be aware of the special tax rules on these investments. The rules become especially tricky when your MLP investment within an IRA earns more than a certain amount.

How Master Limited Partnerships (MLPs) Work

A master limited partnership (MLP) is a security issued by a partnership in the style of company stock. An MLP issues units instead of shares, and these units are often traded on national stock exchanges.

The first MLP was launched in 1981 by Apache Oil Company. MLPs in other industries soon followed. The 澳洲幸运5官方开奖结果体彩网:Tax Reform Act of 1986 ultimately defined the structure and tax treatment of MLPs and limited the use of them to companies with primary business activities in 澳洲幸运5官方开奖结果体彩网:real estate and 澳洲幸运5官方开奖结果体彩网:natural resources.

MLPs are popular among investors when interest rates are low, making their 澳洲幸运5官方开奖结果体彩网:relatively high yields attractive. At the same time, they tend to be more volatile than stocks and bonds, and may be best suited for 澳洲幸运5官方开奖结果体彩网:sophisticated investors with a higher 澳洲幸运5官方开奖结果体彩网:risk tolerance than the average investor.

How MLPs Are Taxed in a Roth IRA

Because the units of an MLP represent an interest in the partnership, any income that they produce is considered a partnership distribution and is taxable as such. A company that issues MLP shares doesn’t pay 澳洲幸运5官方开奖结果体彩网:corporate income tax but instead distributes income to its partners or unitholders. This becomes 澳洲幸运5官方开奖结果体彩网:taxable income to the shareholder.

When you hold MLP shares within an IRA, such as a Roth IRA, any income that you earn above $1,000 annually is considered 澳洲幸运5官方开奖结果体彩网:unrelated business t✅axable ⛎income (UBTI). That makes it subject to immediate tax, unlike most other investments that you might hold in an IRA, where your earnings are usually tax-deferred or, in the case of Roth IRAs, tax-free when you make withdrawals in retirement. Investing in an MLP in a Rot๊h or traditional IRA essentially eliminates the tax benefits of these retir🌱ement accounts on any income that you earn over $1,000.

If you are interested in exposure to MLPs in your Roth IRA, but you would rather avoid the possible tax headaches, consider investing in an exchange-traded fund (ETF) that tracks an underlying ML💛P index. You’ll get the 澳洲幸运5官方开奖结果体彩网:diversification that MLPs can add to a 澳洲幸运5官方开奖结果体彩网:portfolio while keeping the tax advantages of a Roth IRA. 𓃲Or, as an alternative, buy the MLP units for a regular, tax🐬able account.

The Bottom Line

Earning more than $1,000 from a🔯n MLP in your Roth IRA will result in a tax bill, which꧃ negates the tax advantages of this retirement account. If you want MLP exposure in your Roth or traditional IRA, consider an ETF that tracks an MLP index instead.

If you’re still tempted to buy units in an MLP for your IRA, either a Roth or traditional one, it’s worth consulting a 澳洲幸运5官方开奖结果体彩网:tax advisor to work through the tax implications. Another option is to buy MLP units in a taxable investment account instead of an IRA.