Publicly traded or private partnerships within the IRA can create UBTI or unrelated business taxable income. Learn how to report this information when filing taxes.
An Individual Retirement Account (IRA) is a tax-favored vehicle used to invest for retirement. With a traditional IRA, you may be able to deduct your contributions from taxable income, and if you have a Roth IRA, your distributions may be tax free. It’s also true that dividend and interest income earned in an IRA is not taxable as income.
But here's something you may not know about your IRA and taxes: there may be tax implications and some additional filing if you’re invested in publicly traded or private partnerships, via what's known as unrelated business taxable income (UBTI). That's the name for income generated by a tax-exempt entity, by means of a taxable activity.
Let’s look at two hypothetical IRA accounts with unrelated business income.
IRA #1:
This account has three partnerships. The amounts of UBTI are $2,000, $500, and $500; that’s a total of $3,000. You will need to file a 990-T and pay taxes on $2,000 of UBTI (the first $1,000 is deductible).
IRA #2:
This account also has three partnerships. The amounts of UBTI are -$2,000, $1,000 and -$2,000, for a total of -$3,000. Although this amount is negative, you can still file a 990-T, and it may be possible to carry the amounts forward to offset future taxation. You may want to speak with a qualified tax advisor for assistance.
If you determine that you need to file a 990-T, take a look at the UBTI Action Plan prepared by TD Ameritrade.
TD Ameritrade does not provide tax advice. Please consult with a tax professional regarding your specific circumstances.
Quick Links
Trade
Invest
Service
Do Not Sell or Share My Personal Information
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated, and are not responsible for one another's policies or services.
Please note that by clicking the hyperlinks provided you will enter unaffiliated third-party websites to access their products and services. The third-party sites are governed by their posted privacy policies and terms of use, and the third parties are solely responsible for the content and offerings on their websites.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.