An Individual Retirement Account (IRA) is a tax-favored vehicle used to set money aside for retirement. With a traditional IRA, you may be able to deduct your contributions from taxable income, and if you’re in 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, just like most brokerage accounts. Pretty tax friendly, right?
But, know this: there may be tax implications and some additional filing if you’re invested in publicly traded or private partnerships.
How Do I Know If I’m Impacted?
- Separate the partnership K-1s (Form 1065) you have received per account.
- Determine the amount of Unrelated Business Taxable Income (UBTI) per partnership. This figure is typically found in box 20V of the K-1. Some amounts can be negative.
- Add up the UBTI per IRA account. If the gross amount is $1,000 or more, you will need to complete an IRS Form 990-T.
Let’s look at two hypothetical IRA accounts.
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).
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.
Tips to Keep in Mind
- TD Ameritrade provides partnership information to the partnerships per account and not per Social Security number. If your K-1 is reporting shares for multiple accounts on one K-1, you will need to contact the partnership directly and ask that they be separated by account.
- If you file a 990-T, you will need an Employer ID Number for each IRA account. Your broker can assist you in obtaining one. Please review the UBTI Action Plan mentioned above.
- Partnerships have different deadlines to provide your K-1. If you haven’t received your K-1 yet, you may be able to find it online at taxpackagesupport.com or partnerdatalink.com. If your partnership does not use one of these vendors, you can reach out to the partnership directly. Any taxes that may be due will need to be paid to the IRS out of your IRA account. TD Ameritrade will send this amount on your behalf, as calculated on the 990-T you provide.
How Can We Help?
Questions? Drop TD Ameritrade a line 24/7 through the secure Message Center. You can also chat virtually in real time or speak to a Tax Services Representative at 1-800-669-3900 Monday through Friday, 9 a.m. to 5:30 p.m. ET.
The information presented is for informational and educational purposes only. Content presented is not an investment recommendation or advice and should not be relied upon in making the decision to buy or sell a security or pursue a particular investment strategy.