Anyone know anything about the tax and other ramifications of buying stock in a Masters Limited Partnership, especially inside an IRA?

I own 3 different MLPs and one "rule" I know for sure is that you don't own it in an IRA. I'm not saying that it's illegal or anything like that. What I mean is that one of the benefits of an MLP is its tax break.

You don't pay much in taxes for the distributions you get. To put it in a tax-advantaged account (IRA) would be redundent. You would be using 2 tax-saving vehicles for one investment.

One other thing to consider is that the tax return becomes more difficult. I started using TurboTax the 2nd year I owned my first MLP and haven't done them myself since. If you decide to use a tax software, make sure it can do forms which include "K-1s" (which you'll also need when you sell- something I haven't done yet).

{Note from Topaz: make sure you read the last paragraph if nothing else} Here's a place to learn more: web.streetauthority.com/terms/m/mlp.asp and my favorite site: investopedia.com/articles/basics/07/ml_p... says: "Tax implications for MLPs differ significantly from corporations for both the company and its investors. Like other limited partnerships, there is no tax at the company level. This effectively lowers an MLP's cost of capital, as it does not suffer the problem of double taxation on dividends.

Companies that are eligible to become MLPs have a strong incentive to do so because it means a cost advantage over their incorporated peers. In an MLP, instead of paying a corporate income tax, the tax liability of the entity is passed on to its unitholders. Once a year, each investor receives a K-1 statement (similar to a 1099-DIV form) detailing his or her share of the partnership's net income, which is then taxed at the investor's individual tax rate.

Tax-exempt institutional investment funds such as pensions, endowments and 401(k) plans are restricted from owning MLPs because the cash distributions received are considered unrelated business taxable income (UBTI) - income that is unrelated to the activity that gives the fund tax-exempt status. This could create a tax liability on any distribution of more than $1,000. This is also true for individuals when holding MLPs in an IRA account; therefore, the best way to hold them is in a regular brokerage account.(To read more about retirement plans and taxes, see IRA Contributions: Deductions and Tax Credits and How IRA Contributions Affect Your Taxes.) Good luck and have fun.

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