What is UBIT? Is it only for SD IRA?

[Mindy Jensen]

Most of my RE is invested through my Self Directed Solo 401k. 

I've seen the term UBIT thrown around, but don't fully understand it. I don't think it affects my  life, so that's good but I want to know about it anyway.

Tagging @Dmitriy Fomichenko who seems to know everything...

[Dmitriy Fomichenko]

Mindy,

UBIT stand for Unrelated Business Income Tax and applies on any income in your 401k that would derive from active trade or business. Passive investments (rental real estate, trust deeds, tax liens, private business, private lending, etc.) would be exempt from this tax. 

Example of active trade or business would be: franchise business owned in by your 401k, flipping done in your 401k.

In an IRA UBIT would also apply on income from leveraged property, but the 401k is exempt from this.

Here is more on this subject from the IRS:

https://www.irs.gov/charities-non-profits/unrelate...