UBTI and self directed IRA

[Jason Malabute]

If a limited partner investor invest money out of his self directed IRA will he get hit by UBTI?

[Brian Eastman]

@Jason Malabute

It will depend on the nature of the partnership and how income is produced.

As a limited partner, the IRA will have tax liability if taxable income to an IRA is created by the partnership.

If the partnership is engaging in a trade or business (as opposed to generating passive income like rents) then there will be taxable Unrelated Business Taxable Income (UBTI).

If the partnership is using debt-financing then there will be taxable Unrelated Debt-Financed Income (UDFI).

The presence of UBTI and/or UDFI will require the IRA to file a trust tax return on form 990-T and pay the resulting Unrelated Business Income Tax (UBIT).

It is always best to check with licensed tax counsel who can review the specifics of your intended IRA investment.