Houston Estate Planning and Elder Law Attorney Blog
You may know that there are tax traps when IRA withdrawals or rollovers are done incorrectly. However, did you know that an investment portfolio could contain a tax trap that could ruin your IRA status?
The most frequently occurring IRA tax trap comes from tax bills through the Unrelated Business Taxable Income (UBTI). Sources of business income from stocks, bonds and funds like interest income, capital gains and dividends are exempt from UBTI and a related tax, the Related Business Income Tax.
Fox Business’s recent article, “Your IRA and taxes: Don't get a surprise tax bill” explains that IRAs that operate a business, have certain types of rental income, or receive income through certain partnerships will be taxed, when the total UBTI exceeds $1,000. This is to prevent tax-exempt entities from gaining an unfair advantage on regularly taxed business entities.