Can an IRA be taxed?
The Motley Fool article is correct that if you earn UBTI over $1000, you will need to pay the tax, even if held in an IRA.   C-corps won't generate UBTI, so you're fine with those.  For non-C-corps, the most common are REITs, MLPs, and BDCs.   REITs  These typically invest in either real estate property or mortgages.  The ones that invest in mortgages are sometimes notated: mREITs, and can occasionally generate UBTI.  Tip: Don't let this stop you from investing in REITs in your IRA.  REITs can be a great source of income and are best held in an IRA since the income will be tax free vs. your ordinary income tax bracket if held in a taxable account.  Some examples of mREITs would be NLY, CIM, AGNC.  Some property REITs would be: O, SNR, OHI, EQR. https://seekingalpha.com/article/1257351-tax-bomb-mortgage-reits-triggering-ubit MLPs Master Limited Partnerships are also pass-through entities, like REITs, but have the additional complication that most issue K-1 forms at tax time.  K-1s can be very complex when the MLP owns assets across state boundaries, which is why I actually PREFER to hold MLPs in my IRA (against the advice of M. Fool) since I won't have to deal with the tax complications of filing the K-1, just as long as my MLPs don't generate over $1000 of UBTI. https://seekingalpha.com/article/4057891-mlps-kminus-1s-ubti-oh BDCs Business Development Companies like REITs and MLPs are also pass-through entities in that the income they give you will be taxed at your ordinary income bracket if held in a taxable account.  Examples of BDCs include: MAIN, MCC, ARCC.  You'd need to consult their 10-K to determine if there is a risk of UBTI. Tip:  MLPs, BDCs, and especially REITs can all be very valuable sources of income and from my experience, UBTI is rare so don't let that scare you away if you otherwise like the investment.
"Welcome to the 'what should otherwise be a simple choice turns into a huge analysis' debate. If the choice were actually simple, we've have one 'golden answer' here and close others as duplicate. But, new questions continue to bring up different scenarios that impact the choice.  4 years ago, I wrote an article in which I discussed The Density of Your IRA. In that article, I acknowledge that, with no other tax favored savings, you can pack more value into the Roth.  In hindsight, I failed to add some key points. First, let's go back to what I'd describe as my main thesis: A retired couple hits the top of the 15% bracket with an income of   $96,700. (I include just the standard deduction and exemptions.) The   tax on this gross sum is $10,452.50 for an 'average' rate of 10.8%. The tax, paid or avoided, upon deposit, is one's marginal rate. But,   at retirement, the withdrawals first go through the zero bracket (i.e.   the STD deduction and exemptions), then 10%, then 15%. The above is the simplest snapshot. I am retired, and our return this year included Sch A, itemized deductions. Property tax, mort interest, insurance, donations added up fast, and from a gross income (IRA withdrawal) well into the 25% bracket, the effective/average rate was reported as 7.3%. If we had saved in Roth accounts, it would have been subject to 25%.  I'd suggest that it's this phenomenon, the ""save at marginal 25%, but withdraw at average sub-11%"" effect that account for much of the resulting tax savings that the IRA provides.  The way you are asking this, you've been focusing on one aspect, I believe. The 'density' issue. That assumes the investor has no 401(k) option. If I were building a spreadsheet to address this, I'd be sure to consider the fact that in a taxable account, long term gains are taxed at 15% for higher earners (I take the liberty to ignore  that wealthier taxpayers will pay a maximum 20% tax on long-term capital gains. This higher rate applies when your adjusted gross income falls into the top 39.6% tax bracket.) And those in the 10 or 15% bracket pay 0%. With median household income at $56K in 2016, and the 15% bracket top at $76K, this suggests that most people (gov data shows $75K is 80th percentile) have an effective unlimited Roth. So long as they invest in a way that avoids short term gains, they can rebalance often enough to realize LT gains and pay zero tax.  It's likely the $80K+ earner does have access to a 401(k) or other higher deposit account. If they don't, I'd still favor pretax IRAs, with $11K for the couple still 10% or so of their earnings. It would be a shame to lose that zero bracket of that first $20K withdrawal at retirement. Again working backwards, the $78K withdrawal would take nearly $2M in pretax savings to generate. All in today's dollars." Traditional IRA contributions can be made if you  have compensation and the amount of the contribution is limited to the smaller of your compensation and $5500 ($6000 if age 50 or more). Note that compensation (which generally means earnings form working) is not just what appears on a W-2 form as salary or wages; it can be  earnings from self-employment too, as well as commissions, alimony etc (but not earnings from property, pensions and annuities, certain types of partnership income) You must also not have attained age 70.5 in the year for which the contribution is made.  Even if you don't have any compensation of your own, you can nonetheless make a Traditional IRA contribution if your spouse has compensation as long as you are filing a joint tax return with your spouse. For spouses filing a joint return, the  limits are still the same $5500/$6000 for each spouse, and the sum total of Traditional IRA contributions for both spouses also must not exceed the sum total of earned income of both spouses. The age limits etc are all still applicable. Note that none of this says anything about whether the contributions are deductible.  Everyone meeting the above requirements is eligible to make contributions to a Traditional IRA; whether the contributions can be deducted from current income depends on the income:  those with high enough incomes cannot deduct the contribution. This is different from Roth IRAs to which people with high incomes are not permitted to make a contribution at all. Finally, the source of the cash you contribute to the IRA can be the proceeds of the stock sale if you like; you are not required to prove that the cash received from compensation is what you sent to the IRA custodian. Read Publication 590 (available on the IRS website www.irs.gov) if you need an authoritative reference. Yes. Here is the chart:  This will tell you if the IRA is deductible. Above these numbers, and you might be able to deposit to Roth, or to an IRA but not take a deduction. One can have a self-directed IRA. This is not like a Schwab, eTrade, etc IRA. It has a special type of custodian that knows how to manage it.  I became aware of such an account as a way to purchase a rental property. There were two issues. The type of property I looked at wasn't anything a bank was willing to finance. And the rules regarding self dealing added a potential layer of expense as I technically could not perform the simplest of things for the property.  For you, the obstacle looks like self-dealing. Any IRA can only be funded with cash or transfer/conversion from another IRA/401(k). I don't know how you would get the intelligent property into the IRA in the first place. Once you own a patent, or anything else, you can't sell it into the IRA.  It's at times like this that member littleadv would suggest this is the time to talk to a pro before you do anything hazardous to your wealth. A rollover IRA is a traditional IRA.  Your rollover contributions are not taxed and rollover or counted against your annual limit, which is income dependent. A Roth IRA is one where your contributions will be taxed going into the IRA.  Note that there are adjusted gross income maximums for contribution to a Roth IRA (see here), and as far as I can tell those income maximums also determine whether or not you can rollover to a Roth IRA. No. Borrowing is not allowed, but if you take a withdrawal, you have 60 days to deposit into another IRA account. This effectively creates a 60 day loan. Not what you're really looking for.  If you take this withdrawal and re-deposit to new account within 60 days, no problem. If not, you owe tax on the untaxed amount as well as a 10% penalty. This comes from IRS' Publication 590, I have the document memorized by substance, not page number. "Self directed IRAs have rules to prevent self-dealing of this sort called ""prohibited transactions"". You can't buy or sell or lease assets or obtain services from anyone closely linked to you or any beneficiaries of the IRA. You can't loan yourself money from the IRA, and you can't deliberately take the proceeds that should be going to your self directed IRA and give them to another account that you own." If you don't pull the money out of an IRA or 401(k) until you hit retirement age, there are no tax consequences at all. No matter how you invest or ignore it, it won't affect your return. Same for a Roth IRA, unless you move money out of the account before age 59 ½ it's essentially invisible to the IRS. (Because some of a Roth has already had taxes paid, the rules are more complicated if you do pull out the money, whereas the others are just a straight tax penalty with few exceptions.) "IRAs have huge tax-advantages. You'll pay taxes when you liquidate gold and silver. While volatile, ""the stock market has never produced a loss during any rolling 15-year period (1926-2009)"" [PDF]. This is perhaps the most convincing article for retirement accounts over at I Will Teach You To Be Rich. An IRA is just a container for your money and you may invest the money however you like (cash, stocks, funds, etc). A typical investment is the purchase of stocks, bonds, and/or funds containing either or both. Stocks may pay dividends and bonds pay yields. Transactions of these things trigger capital gains (or losses). This happens if you sell or if the fund manager sells pieces of the fund to buy something in its place (i.e. transactions happen without your decision and high turnover can result in huge capital gains). In a taxable account you will pay taxes on dividends and capital gains. In an IRA you don't ever pay taxes on dividends and capital gains. Over the life of the IRA (30+ years) this can be a huge ton of savings. A traditional IRA is funded with pre-tax money and you only pay tax on the withdrawal. Therefore you get more money upfront to invest and more money compounds into greater amounts faster. A Roth IRA you fund with after-tax dollars, but your withdrawals are tax free. Traditional versus Roth comparison calculator. Here are a bunch more IRA and 401k calculators. Take a look at the IRA tax savings for various amounts compared to the same money in a taxable account. Compounding over time will make you rich and there's your reason for starting young. Increases in the value of gold and silver will never touch compounded gains. So tax savings are a huge reason to stash your money in an IRA. You trade liquidity (having to wait until age 59.5) for a heck of a lot more money. Though isn't it nice to be assured that you will have money when you retire? If you aren't going to earn it then, you'll have to earn it now. If you are going to earn it now, you may as well put it in a place that earns you even more. A traditional IRA has penalties for withdrawing before retirement age. With a Roth you can withdraw the principal at anytime without penalty as long as the account has been open 5 years. A traditional IRA requires you take out a certain amount once you reach retirement. A Roth doesn't, which means you can leave money in the account to grow even more. A Roth can be passed on to a spouse after death, and after the spouse's death onto another beneficiary. more on IRA Required Minimum Distributions." Think about contributing to both a Traditional IRA and a Roth IRA if you have the funds. In theory, you could receive the lowest tax rates by depositing money into a regular IRA during years of democratic rule, depositing money into a Roth during years of Republic rule, and then withdrawing from the Roth during democratic rule and the tradition during Republican rule. Then you would be depositing with lower tax rates and withdrawing with lower tax rates. Granted this method would involve some speculation. "Your 401K (and IRA) is a legally distinct entity from yourself. In fact, it is a ""trust,"" and your Administrator is a ""trustee,"" while you are both creator and benefactor. This fact, and the 10% early withdrawal penalty, makes it immune from most judgments. The IRS can ""levy"" your 401K or IRA for back taxes, but must waive the 10% penalty (under the 1997 Tax Reform law). That gives them the power to do what most others can't. A ""tricky"" banker may persuade you to take money out of your 401K to pay the bank. If you do, s/he has won. But s/he can't go after your 401k." "Click on the ? icon next to ""Employer Plan"". This is used to determine if you can deduct your annual contributions from your taxes. For more information on how an employer plan can affect your IRA tax deduction, see the definition for non-deductible contributions. So, we look there: The total of your Traditional IRA contributions that were deposited without a tax deduction. Traditional IRA contributions are normally tax deductible. However, if you have an employer-sponsored retirement plan, such as a 401(k), your tax deduction may be limited.  The $20K difference between $272K and $252K just happens to be $15% of $132,500 which is the amount of your non-deductible contributions." "This may be more of a comment than an answer, but it's too long for a comment. Perhaps the Stackexchange Gods will forgive my impudence. That said: Even with the tax penalties, it can be to your advantage to put money into a ""retirement"" account and withdraw it before retirement. The trick is: Is the amount of the tax penalty more than the benefit of untaxed compound growth? For example, just to make up some numbers: Suppose you have $1000 of gross income to invest. You are considering whether to invest in an ordinary, non-tax favored account, or a classic IRA. Either way you will get 10% returns. Your tax rate, both when you put the money in and when you take it out, is 15%. There is a 10% tax penalty for early withdrawal. With an ordinary account you will pay 15% tax off the top, so you are only investing $850. Then each year 15% of your returns are paid in taxes, so your net return is 8.5%. But when you withdraw the money there are no additional taxes. With an IRA you do not pay any taxes up front, so you can invest the entire $1000. You collect 10% each year with no taxes. When you withdraw, you pay 15% plus the 10% penalty equals 25%. So after 5 years, the ordinary account would yield $850 x 1.085^5 = $1504. The IRA would yield $1000 x 1.1^5 x 0.75 = $1208. The tax penalty hurts. You are better to use the ordinary account. But if you could leave your money in for 25 years, then the ordinary account would yield $850 x 1.085^25 = $7687. The IRA would yield $1000 x 1.1^25 x 0.75 = $8126. The IRA, even with the tax penalty, is better. Of course my numbers are just made up. What your tax bracket is, what returns you get, and how long you think you might leave the money in the investment, all vary." First of all, there are some differences between the retirement accounts that you mentioned regarding taxes.  Traditional IRA and 401(k) accounts allow you to make pre-tax contributions, giving you an immediate tax deduction when you contribute.  Roth IRA, Roth 401(k) are funded with after tax money, and a non-retirement account is, of course, also funded with after tax money.  So if you are looking for the immediate tax deduction, this is a point in favor of the retirement accounts. Roth IRA & Roth 401(k) accounts allow the investment to grow tax-free, which means that the growth is not taxed, even when taking the investment out at retirement.  With Traditional IRA and 401(k) accounts, you need to pay tax on the gains realized in the account when you withdraw the money, just as you do with a non-retirement account.  This is a point in favor of the Roth retirement accounts. To answer your question about capital gains, yes, it is true that you do not have a capital gain until an investment is sold.  So, discounting the contribution tax deductions of the retirement accounts, if you only bought individual stocks that never paid a dividend, and never sold them until retirement, you are correct that it really wouldn't matter if you had it in a regular brokerage account or in a traditional IRA.  However, even people dedicated to buy-and-hold rarely actually buy only individual stocks and hold them for 30 years. There are several different circumstances that will generally happen in the time between now and when you want to withdraw the money in retirement that would be taxable events if you are not in a retirement account: If you sell an investment and buy a different one, the gains would be taxable. If you want to rebalance your holdings, this also involves selling a portion of your investments.  For example, if you want to maintain an 80% stock/20% bond ratio, and your stock values have gone up to 90%, you might want to sell some stock and buy bonds.  Or if you are getting closer to retirement, you might decide to go with a higher percentage of bonds.  This would trigger capital gains. Inside a mutual fund, anytime the management sells investments inside the fund and realizes capital gains, these gains are passed on to the investors, and are taxable.  (This happens more often with managed funds than index funds, but still happens occasionally with index funds.) Dividends earned by the investments are taxable.  Any of these events in a non-retirement account would trigger taxes that need to be paid immediately, even if you don't withdraw a cent from your account. Whether or not you can deposit to a Roth IRA, you are able to convert those deposits to A Roth account. In effect, you pay the tax going in (as with the regular brokerage account) but no tax on growth when withdrawn.  The non-deductible IRA, on its own, holds little appeal, in comparison.