Investing 102

[GregWeld]

Since we're talking about 401's.... (not ROTHS here)

Some of the stocks we've been discussing are "tricky". Master Limited Partnerships (Kinder Morgan Partners - KMP) is one of these...

Although you can technically hold MLP units in an IRA and other tax-exempt investment vehicles, don’t do it.

Placing investments that are already tax-advantaged in a tax-sheltered account isn’t the most efficient allocation of resources; hold MLP units in brokerage accounts and keep your IRAs and 401(k) plans for more traditional fare.

MLP's pass thru 80 to 90% of their "income" to the unit holder (share holder) and as such are not taxed (Federally) so the unit holder is the partner that gets hit with the tax... There are rules about this and income levels etc -- so if you get a sizable dividend from MLPS you should discuss this with a CPA...
You're not taxed on this until the "return of capital" (which is what it is - it's not a "dividend") is above your cost basis... So let's say you have $10,000 worth of "units" -- you'll have no tax until you've gotten $10,000 in "return of capital/dividends"... There are other rules - but just be aware of them if you're buying bigger amounts because they can affect your income tax return.


I own an apartment complex inside an IRA... and I have to file an income tax and pay a tax on it each year even though it's inside the IRA -- because it get hit with UBIT (Unrelated Business Income Tax)... It's not a big tax but still costs me to have the paperwork done and I have to have the IRA pay the tax etc - so it's a hassle. I wanted to BUY the investment out of the IRA --- in other words I'd pay the IRA the amount of the investment and take it out of there -- but that would cause even more tax issues. UGH!