Tax intricacies of MLP in a Roth IRA
"You seem to have it right.  Unless you have a big position, having MLP shares in your IRA will not cause you any tax hassles.  Your IRA will get a Schedule K from the MPL (which may be mailed to you), but you won't need to do anything with that unless you're over the UBI limit.  Last I checked, that was $1000, and you probably won't exceed that. UBI in principle needs to be evaluated every year, so it's not necessarily a ""one-time"" event.  If your IRA does go over the UBI limit, your IRA (not you) needs to file a return.  In that case, contact your custodian and tell them about the Schedule K that you got. See also my answer here: Tax consequences of commodity ETF The question is about commodity ETFs in IRAs, but the part of my answer about UBI applies equally well."
"First - for anyone else reading - An IRA that has no beneficiary listed on the account itself passes through the will, and this eliminates the opportunity to take withdrawals over the beneficiaries' lifetimes. There's a five year distribution requirement. Also, with a proper beneficiary set up on the IRA account the will does not apply to the IRA. An IRA with me as sole beneficiary regardless of the will saying ""all my assets I leave to the ASPCA."" This is also a warning to keep that beneficiary current. It's possible that one's ex-spouse is still on IRA or 401(k) accounts as beneficiary and new spouse is in for a surprise when hubby/wife passes. Sorry for the tangent, but this is all important to know. The funneling of a beneficiary IRA through a trust is not for amateurs. If set up incorrectly, the trust will not allow the stretch/lifetime withdrawals, but will result in a broken IRA. Trusts are not cheap, nor would I have any faith in any attorney setting it up. I would only use an attorney who specializes in Trusts and Estate planning. As littleadv suggested, they don't have to be minors. It turns out that the expense to set up the trust ($1K-2K depending on location) can help keep your adult child from blowing through a huge IRA quickly. I'd suggest that the trust distribute the RMDs in early years, and a higher amount, say 10% in years to follow, unless you want it to go just RMD for its entire life. Or greater flexibility releasing larger amounts based on life events.  The tough part of that is you need a trustee who is willing to handle this and will do it at a low cost.  If you go with Child's name only, I don't know many 18/21 year old kids who would either understand the RMD rules on IRAs or be willing to use the money over decades instead of blowing it.  Edit - A WSJ article Inherited IRAs: a Sweet Deal and my own On my Death, Please, Take a Breath, an article that suggests for even an adult, education on how RMDs work is a great idea." According to Publication 590, broker's commissions for stock transactions within an IRA cannot be paid in addition to the IRA contribution(s), but they are deductible as part of the contribution, or add to the basis if you are making a nondeductible contribution to a Traditional IRA. (Top of Page 10, and Page 12, column 1, in the 2012 edition of Pub 590). On the other hand, trustees'  administrative fees can be paid from outside the IRA if they are billed separately, and are even deductible as a Miscellaneous Deduction on Schedule A of your income tax return (subject to the 2% of AGI threshold).  A long time ago, when my IRA account balances were much smaller, I used to get a bill from my IRA custodian for a $20 annual administrative fee which I paid separately (but never got to deduct due to the 2% threshold). My custodian also allowed  the option of doing nothing in which case the $20 would be collected from (and thus reduce) the amount of money in my IRA.  Note that this does not apply to the expenses charged by the mutual funds that you might have in your IRA; these expenses are treated the same as brokerage commissions and must be paid from within the IRA. Straight line in this example should be just the $2MM per year.  I don't think the author of the problem intended you to use anything in the actual tax code like MACRS.  I think the goal of the problem is to get you to identify the value of the depreciation tax shield and how the depreciation does affect your cash flow by reducing your taxes, even though depreciation itself is not a cash event. "Does your company offer a 401(k) and are you taking maximum advantage of it? 2015 limit is $18,000, an extra $5,500 if you are 50 or older.  The RMD shouldn't be too large, it depends on your age, of course. You're in no worse shape than anyone hitting age 70-1/2 and having to start taking their RMDs. If you are younger, your RMDs start pretty low. If I look at Pub 590, I find a 50 year old starts with a 34.2 divisor, less than 3% each year. At 60, it's 25.2, just under 4%.  Edit - someone around 30 will have a divisor around 53.3 the first year. Just under 2%. I don't know what you consider ""sizable,"" but much above $300K in that IRA and you'll have more come out than you can fund into a Roth. Regardless of the amount, the RMD is taxable. You just need to pay the tax from other funds if you wish to keep the money invested as it was.  You will pay the tax at your marginal rate, and that's it. This is the one downside of the inherited IRA, unlike regular money, it doesn't escape taxes. But, your dad put it in pre-tax (right?) so the amount you got is larger for that fact.  I'm sorry for your loss." "The backdoor Roth IRA contribution has been possible for a few years now and is fairly widely known. The IRS hasn't said anything negative about it. An answer to my question here mentions that it could hypothetically be disallowed through the ""step transaction doctrine"", although that is the only time I have heard that possibility raised. For some background, the income limit on Roth conversions was removed as a ""revenue-offsetting provision"" of the Tax Increase Prevention and Reconciliation Act of 2005. They want people who have deducted contributions in Traditional IRAs to convert to Roth and pay taxes now rather than waiting many years until retirement. Conversely, people performing the backdoor Roth IRA contribution have already paid taxes on that money and it's just preventing them from having to pay taxes many years later. It's easy to see how Congress would find this a satisfactory exchange." Interesting. When you say DIY you mean pencil and paper. For most of us the choice came down to using a professional vs using the software.  Your second bullet really hits the point. The tax return is a giant spreadsheet with multiple cells depending on each other. Short of building my own spreadsheet to perform the task, I found the software, at $30-$50, to be the happy medium between the full DIY and the Pro at $400+.  With a single W2, and no other items, the form is likely just a 1040-EZ, and there shouldn't be any recalculating so long as you have the data you need. Pencil/paper is fine.  There's no exact time to say go with the software, except, perhaps, when you realize there are enough fields to fill out where the recalculating might be cumbersome, or the need to see the exact tax bracket has value for you.  You are clearly in the category that can fill out the one form. At some point, you might have investment income (Schedule D) enough mortgage interest to itemize deductions (Schedule A) etc. You'll know when it's time to go the software route.  Keep in mind, there are free online choices from each of the tax software providers. Good for simple returns up to a certain level. Thanks to Phil for noting this in comments.  I'll offer an anecdote exemplifying the distinction between using the software as a tool vs having a high knowledge of taxes. I wrote an article The Phantom Tax Zone, in which I explained how the process of taxing Social Security benefits at a certain level created what I called a Phantom Tax Rate. I knew that $1000 more in income could cause $850 of the benefit to be taxed as well, but with a number of factors to consider, I wanted to create a chart to show the tax at each incremental $1000 of income added. Using the software, I simply added $1000, noted the tax due, and repeated. Doing this by hand would have taken a day, not 30 minutes.  For you, the anecdote may have no value, Social Security is too far off. For others, who in March are doing their return, the process may hold value. Many people are deciding whether to make their IRA deposit be pre-tax or the Post tax Roth IRA. The software can help them quickly see the effect of +/- $1000 in income and choose the mix that's ideal for them. "Keep in mind, there are too many variables to address in a single post. I could (and might) write a full book on the topic. One simple way to comprehend your perceived observation. In the 25% bracket, you have $1000 of income and two choices. Net out $750, and deposit to Roth, or deposit the full $1000 to the traditional IRA or 401(k). Sufficient time passes for the investment to grow 10 fold. For what it's worth, 8% at 30 years will do that.  The Roth is now worth $7500 tax free. The traditional 401(k) is worth $10000 but subject to tax. At 25%, we're at the same $7500.  For those looking to invest more than a gross $18,000, the Roth flavor is an effective $24,000, as post tax, this is $18,000. I wrote a bit more on this in the whimsically titled The Density of Your IRA. This is really a top 10%er issue, as it takes quite a bit of income for the $23,000 combined IRA and 401(k) limits to be a problem.  In my writing, the larger case to be made is for taking advantage of the tax rate difference between the time of deposit and withdrawal. A look at the 2016 tax rates is in order.  Let's stick with 25% while working. Now, at retirement, but before social security, as that's another story, the couple has $20,600 in standard deduction and exemption, and both the 10 and 15% brackets to enjoy.  Ignoring any other deductions, potential credits, etc, let's look at a gross $80,000 withdrawal.   The numbers happen to work out to an average 10%, with the couple being in a marginal 15% bracket. A full 25% or $20,000 tax would be the break-even to the ""same bracket in/out"" analysis, so this produces a $12,000 benefit.  This issue is often treated as if there were 2 points in time, the deposit, and the withdrawal. For most people, that may be the case. Keep in mind, current law allows a conversion to Roth any time in between. This gives an opportunity to make a deposit while in the 25% bracket, and convert in any year the marginal rate drops back to 15% for whatever reason.  Last - I can't ignore the Social Security problem. Simply put, when half of your Social Security benefits plus other income exceed $25,000 ($32,000 if married filing joint) your benefits start to become taxable, until 85% of your benefits are fully taxed. This issue is worthy of multiple posts by itself. It's not a deal killer, just another point to consider. A very high income earner might be beyond these levels already, in which case the point is moot. A low income earner, not impacted at all. It's those who are in the range to navigate this that would benefit to take advantage of the scenario I presented above and spend down pre-tax accounts, while planning to use the Roths when Social Security starts. This should make it clear - it's not all or none. Those retiring with $2M in 100% pretax, or $1.5M 100% in Roth have both missed the chance to have the optimal mix." "Taxes are triggered when you sell the individual stock.      The IRS doesn't care which of your accounts the money is in.  They view all your bank and brokerage accounts as if they are one big account mashed together.   That kind of lumping is standard accounting practice for businesses. P/L, balance sheets, cash flow statements etc. will clump cash accounts as ""cash"".  Taxes are also triggered when they pay you a dividend.  That's why ETFs are preferable to mutual funds; ETFs automatically fold the dividends back into the ETF's value, so it doesn't cause a taxable event.  Less paperwork.  None of the above applies to retirement accounts.  They are special.  You don't report activity inside retirement accounts, because it would be very hard for regular folk to do that reporting, so that would discourage them from taking IRAs.   Taxes are paid at withdrawal time (or in Roth's, never.)" "One problem with this plan is that the individual must have earned income to contribute to a Roth IRA. If you have an infant, unless she is the new Gerber baby or something like that, there is probably no legitimate way for her to earn income. If you own a business and have kids who are older, you can employ them to do work for you, but they must really do work and earn around the market rate for that work. Otherwise, it is unlikely that they will be able to earn enough to fund an IRA until they are teenagers. When they are old enough to work, you can ""match"" their earnings by contributing the same amount to a Roth IRA on their behalf, but this will not give you the amount of contributions and growth time that you were counting on." As I commented, there's confusion on withholding. The 20% pertains to 401(k) accounts, not IRAs. Your math is correct. As you point out, because of the commutative property of multiplication, Roth and traditional IRAs offer the same terminal wealth if your tax rate is the same when you pull it out as when you put it in.  Roth does lock in your tax rate as of today as you point out, which is why it frequently does not maximize wealth (most of us have a higher tax bracket when we are saving than when we are withdrawing from savings). There are a few other potential considerations/advantages of a Roth: Roth and traditional IRAs have the same maximum contribution amount.  This means the effective amount you can contribute to a Roth is higher ($5,500 after tax instead of before).  If this constraint is binding for you and you don't expect your tax rate to change, Roth is better. Roth IRAs allow you to withdraw your contributed money (not the gains) at any time without any tax or penalty whatsoever.  This can be an advantage to some who would like to use it for something like a down payment instead of keeping it all the way to retirement.  In this sense the Roth is more flexible. As your income becomes high, the deductibility of traditional IRA contributions goes to zero if you have a 401(k) at work (you can still contribute but can't deduct contributions).  At high incomes you also may be disallowed from contributing to a Roth, but because of the backdoor Roth loophole you can make Roth contributions at any income level and preserve the full Roth tax advantage. Which type of account is better for any given person is a complex problem with several unknowns (like future tax rates).  However, because tax rates are generally higher when earning money, for most people who can contribute to them, traditional IRAs maximize your tax savings and therefore wealth. Edit: Note that traditional IRA contributions also reduce your AGI, which is used to compute eligibility for other tax advantages, like the child care tax credit and earned income credit.  AGI is also often used for state income tax calculation. In retirement, traditional IRA distributions may or may not be state taxable, depending on your state and circumstances. "Yes, you can withdraw the excess contribution (or actually any amount you contributed for 2015, not necessarily an excess), plus earnings from that withdrawn contribution, by April 15, and not incur a penalty for the excess contribution. It would count as if you did not contribute that amount at all. The earnings would be taxed as regular income, and the earnings may incur a penalty. Yes, you can ""recharacterize"" (all or part of) your Roth IRA contribution as a Traditional IRA contribution (or vice versa) by April 15. Recharacterization means you pretend the contribution was originally made as a Traditional IRA contribution, and did not involve Roth IRA at all. (""Conversion"" is something very different and can only go from Traditional to Roth, not the other way around.) You are likely not eligible to deduct that Traditional IRA contribution, so you will have to report it as a non-deductible Traditional IRA contribution on a 2015 Form 8606 Part 1. Note that after you've recharacterized it as a Traditional IRA contribution, you can also then ""convert"" that Traditional IRA money to a Roth IRA if you want, achieving the same state as what you have now. Contributing to a Traditional IRA and then converting to a Roth IRA is called a ""backdoor Roth IRA contribution""; if you don't have any existing pre-tax money in Traditional IRA or other IRAs, then this achieves the same as a regular Roth IRA contribution except with no income limits. When you convert, the earnings you have made since contributing will be taxed as income. If you had done the backdoor originally to begin with (convert right after contributing), you would have had no earnings in between and no tax to pay, but since if you do the conversion now you have waited so long, you are disadvantaged by having to pay tax on the earnings in between. If you convert, you will have to fill out Form 8606 Part 2 for the year you convert (2016)." You can withdraw the principal of your Roth IRA account (i.e.: the amounts after tax deposited there) without a tax. However, in case of conversion - you have to wait for five years before you can do that. Otherwise, 10% penalty will apply. It is actually mentioned in the article you linked to. Taxable portion in that context is the portion you paid tax on when converting. In the case you described (converting your 401k) that would be the whole amount of the conversion. "This does not apply to Roth IRAs. It defines the difference between the two depending on what your age is when this happens. If you are 59 or younger, you have a 10% penalty in addition to taxes. If you are between 59.5 and 70, there is no penalty, but you do have to pay taxes. If you are 70.5 or older, then you MUST withdraw money, and that withdrawal is called the ""required minimum distribution"" and you pay taxes on it as if it were income.  In terms of investments, the two are the same in that the earnings you make on your investments grow tax free.  Here is more information between the two.  *Improvements are welcome for my answer." Sorry, but I think you really do need an attorney here. This is the kind of minefield where knowing all the precedents and edge cases can make a huge difference in what you can or can't do, and a misplaced comma can make or break your case. Note that AT BEST you could sell your own interest in the house -- owning the note does not mean owning the property, it only means that they issued the note on the strength of your share of the property. And a half-interest in a single family house has little value outside the family, except to sell it to whoever owns the other half. Which is probably the best answer: Sell your half to your Aunt, if she can afford to buy it. She then gets sole control of the house, and you get the money you seem to need right now, and everyone in the family is much less stressed.