When individuals invest IRA funds in partnerships, they will owe tax on certain partnership income exceeding $1,000. When this tax applies, it almost always catches the IRA owner by surprise. This tax is known as Unrelated Business Income Tax. A recent article in The Wall Street Journal highlighted this potential tax trap.
The IRA trustee is responsible for preparing Form 990-T to calculate the tax but the IRA owner is generally responsible for ensuring that the tax is paid. To avoid this complexity and cost, IRA owners should consult with their investment advisor about any publicly traded partnerships already owned by their IRA and consider making these types of investments in non-IRA accounts in the future.
Manager – Packer Thomas
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