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Strategies & Market Trends : Value Investing

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To: Elroy who wrote (72527)	7/3/2023 6:44:47 PM
From: E_K_S	Read Replies (2) of 78817

Re: UBI in a ROTH account FYI, I received an email today for exceeding UBI in my ROTH and have a $22 tax due. This seems to be related to DCP shares that I sold (in 2022) and somehow UBI was generated from that sale. As a result, they will deduct the $22 from the account. DCP was acquired by PSX and the transaction closed 5/2023. In my ROTH I closed out the DCP shares in 2022 (I think there was only 50 shares total) but these did have a very low cost basis AND also probably a pretty large Depreciation recapture (from the sale). As a result of that transaction, I generated over $1K UBI. In fact they say it was $2,250 of UBI for 2022. (NOTE: Does not seem possible that ANY of the net proceeds was UBI but according to the 990-T form Schwab filed on my behalf, 90% of those net proceeds was categorized as UBI) ------------------------------------------------------------ My takeaway is (1) do not hold any MLP's in your ROTH/IRA & (2) sale of shares can generate additional UBI. I could have sold 25 shares to stay under the $1K UBI and spread that out over years but would not have worked for DCP because the buyout was a 'mandatory' conversion to cash. The Schwab email, did state if their UBI estimates continued to exceed the $1K threshold, then you must set up quarterly estimated payments to IRS for the ROTH/IRA account. (NOTE: Their estimates of UBI was 'triggered' by my selling the shares in 2022 not from the annual div distributions) ----------------------------------------------------------- I could see this being an issue if one had a large amount of MLPs in their tax deferred accounts especially with a low cost basis and some/all of those shares were sold in a year. Perhaps every company is different in how they classify UBI but in DCP's case, they must have had other operations that were/are unrelated to their business. DCP now merged with PSX (merger closed as of 5/2023) so it's a moot point for DCP shareholders.

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