When you think of taxes and IRAs, early withdrawals and required minimum distributions probably come to mind. But another tax can apply: the unrelated business income tax.

This tax is assessed on income earned in your IRA from a trade or business or certain debt-financed property, because those activities are considered unrelated to the primary purpose of your account.

While you might believe your IRA has no income from these sources, be aware that indirect business ownership — such as an interest in a partnership — can generate unrelated business income, making your retirement account liable for the tax. Generally, interest, dividends, and royalties are exempt.

What happens if you discover your IRA is subject to the tax? When the gross amount of unrelated business taxable income is more than $1,000, your IRA may need to file Form 990-T, Exempt Organization Business Income Tax Return. For IRAs, the due date is April 15. Tax rates range from 15% to 35%, and any tax owed must be paid from your retirement account.

The rules apply to traditional and Roth IRAs, as well as SEPs, SIMPLEs, Coverdells, 529 plans, and Archer medical savings accounts.

Please contact us if you would like more information about taxes affecting your retirement accounts.


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