dgva
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Posts: 29
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Post by dgva on Jun 11, 2021 20:34:45 GMT
Thinking about commodity investments and have done relatively tiny (compared to PV) investments in GLD, SIVR, GSG and DJP. Although these appear to be moving up in strength, I am not sure that continuing to add is a good idea based on taxation. Or maybe the taxation issue is actually trivial?
From reading:
An ETF that holds physical assets (metals for example), is considered a grantor trust, and if the assets are considered collectibles (gold), both long and short term gains are taxed as ordinary income. However, GLD prospectus states..." The Sponsor has received a private letter ruling from the IRS concluding that a purchase of Shares by an IRA, or y a participant-directed account under a Code Section 401(a) plan (a “plan account”), will not be treated as the acquisition of a collectible by the IRA or plan, and will not result in a taxable distribution to the IRA owner or plan participant under Code Section 408(m). However, if Shares are distributed by the trustee or custodian of an IRA or plan account to the IRA owner or participant, or if a redemption of any Shares held by an IRA or plan account results in the distribution of gold to the IRA or account (or such redemption is treated as distributed under Section 408), other than Non-Collectible Gold Coins or Non-Collectible Gold Bullion, such distribution would be taxable to the distributee in the year of distribution to the extent provided under the applicable provisions of Code Sections 408(d), 408(m) or 402. See also “ERISA and Related Considerations."
How likely is it that holding GLD in an IRA generates taxation issues for an IRA?
Any ETF that holds futures contracts, is considered an LP, and distributes a K1 for tax purposes. Holding an LP in an IRA can generate UBTI if more than $1000 in gains occurs in the account, not just in one LP. This is true for both Traditional and Roth IRAs? Is it preferred to hold LP in a taxable account?
Thoughts about portfolio options for commodities?
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Post by anitya on Jun 12, 2021 1:46:49 GMT
I had owned GLD for a few years in one of my IRAs and never received a notification from the brokerage that they may have to file a 990T. If GLD actually owns the metal, what income can it generate? In the 15-16 yrs since its inception, it never distributed a penny, indicating it has never generated net income. I do not think gain from sale of an LP interest is UBTI.* I usually read the fund website thoroughly before or immediately after investing and do not recall seeing any red flags about taxation. Please refer to the fund website for any additional tax disclosures.
*I sold some midstream LP units at a profit and will find out in 2022 if I am wrong.
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dgva
Ensign
Posts: 29
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Post by dgva on Jun 12, 2021 8:25:26 GMT
Thanks, Anitya for sharing your GLD experience. I have owned various, but relatively low, amounts of ENB but never received a 990T. After posting OP, I found a SA piece re MMPs. The main piece was reassuring, but many of the comments were less so. You may be right about paying cap gains on a LP sale. One of my questions was whether taxation differs based on whether the LP is held in a Traditional versus a Roth IRA. seekingalpha.com/article/4057891-mlps-and-kminus-1s-and-ubti-ohReading a piece by Lyn Alden started the thought process. If UBTI is not an issue, her piece suggests that the only downside to holding an MMP in a Roth is that you are not taking full advantage of the tax efficiencies that MMP provide. (Similar to holding a muni in an IRA in that the ROI may still be worth it.) www.lynalden.com/roth-ira/#worst
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Post by liftlock on Jun 12, 2021 16:00:10 GMT
Thoughts about portfolio options for commodities? One way to avoid the taxation issues related to holding commodities in an IRA is to invest in the stocks of commodity producers. That's what I do.
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Post by anitya on Jun 13, 2021 7:07:12 GMT
Thanks, Anitya for sharing your GLD experience. I have owned various, but relatively low, amounts of ENB but never received a 990T. After posting OP, I found a SA piece re MMPs. The main piece was reassuring, but many of the comments were less so. You may be right about paying cap gains on a LP sale. One of my questions was whether taxation differs based on whether the LP is held in a Traditional versus a Roth IRA. seekingalpha.com/article/4057891-mlps-and-kminus-1s-and-ubti-ohReading a piece by Lyn Alden started the thought process. If UBTI is not an issue, her piece suggests that the only downside to holding an MMP in a Roth is that you are not taking full advantage of the tax efficiencies that MMP provide. (Similar to holding a muni in an IRA in that the ROI may still be worth it.) www.lynalden.com/roth-ira/#worstHi, I would qualify the cap gain treatment. If the partnership has hot assets or depreciation recapture, then some of the cap gain can be converted into ordinary income (UBTI). But GLD should not have that issue, even if it is treated as a partnership. Your Roth IRA link was interesting. Among many things, it says unexercised option premium received is treated as ordinary income and not as capital gain. I received a large sum for writing put options and currently my gain is 80+% but I was not closing out the contract to get long term cap gain treatment in a few months. if I am wrong about the tax treatment, I would make less money than otherwise. I am not a dealer and so am surprised by the ordinary income treatment. I should look into this. Notwithstanding what the article says, selling put options in Roth is not practical because I will have to set aside the underlying amount in cash. In a taxable account that has margin privilege no cash will go uninvested while the option is open.
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Post by yogibearbull on Jun 13, 2021 12:03:19 GMT
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Post by paulr888 on Jun 13, 2021 14:17:11 GMT
This sounds all very complicated. I target commodities at 6% PV. My only gold exposure is via Franco Nevada (FNV). I have 2 long/short commodity funds, DBCMX and LCSIX. These are in my IRA. I am not aware of any issues for me so ignorance is bliss for me. Good luck sorting this out with your portfolio.
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Post by retiredat48 on Jun 13, 2021 16:03:22 GMT
This sounds all very complicated. I target commodities at 6% PV. My only gold exposure is via Franco Nevada (FNV). I have 2 long/short commodity funds, DBCMX and LCSIX. These are in my IRA. I am not aware of any issues for me so ignorance is bliss for me. Good luck sorting this out with your portfolio. Hmmm...I take same approach. BTW if one has a Trad and ROTH IRA, why not put such stuff in a Trad. It is mostly considered all income anyway in the long run. R48
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Post by anitya on Jun 13, 2021 22:26:40 GMT
Ned Davis Research report on Friday -
"Inflation expectations eased. The one-year inflation outlook fell to 4.0% from 4.6% in the previous month, while the five-year outlook moved down to 2.8% from 3.0%."
I think I said on another thread - all my inflation bets for the past 16 years have been failures. Money supply, velocity of money, trade deficits, fiscal deficits none of them in my experience had a meaningful impact on US inflation. Long term history may have showed correlation with these measures because all pundits and economists talk about these measures as indicative of future inflation but correlation does not mean causation. In any case, there must be other factors (demographics, technology, globalization, wages, etc.) that have been equally or more impactful on inflation and these other factors by themselves may be dampening or counteracting those direct monetary and fiscal / trade measures.
My current thinking is be a trader not an investor when it comes to inflation.
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