however, on the K-1 you should look for something identified as UBTi
Unrelated Business Taxable Income (UBTI)
A tax on business income could impact your retirement account.
You may think the only time you'd pay taxes on an IRA or a retirement account would be when you take withdrawals or distributions, but it is possible before then for certain income received in retirement accounts to be taxed.
What is UBTI?
When a retirement account earns active business income, this is considered unrelated business income under federal tax law and is subject to its own tax.
Let's say, for example, you own an oil drilling Partnership in your IRA, and the drilling equipment owned by the Partnership is leased to another company to use. This rental income would be considered UBTI.
UBTI tends to be generated by the following types of investment vehicles:
Limited partnerships (LPs) – businesses owned by more than one person, with limited liability to the owners for business debt
Master limited partnerships (MLPs) – a type of LP that is publicly traded and often found in the energy sector
An IRA or retirement account may be invested in a business that generates UBTI.
Tax considerations
If unrelated business income is $1,000 or more per year, the IRS requires reporting of the UBTI on Form 990-T and the payment of excise tax.
Given how LPs, and MLPs, are structured, they're required to pay out most of their profits to investors.
If, for example, your retirement account is invested in an MLP that generates UBTI and the MLP distributes business profits to your retirement account, and UBTI of $1,000 or more is generated then:
you need to find out if the custodian will complete and file Form 990-T on behalf of your retirement account, if required Failure to file Form 990-T and pay any required UBTI tax can result in penalties.
Taxation related to UBTI can be complex. Depending on your financial situation and goals, having retirement accounts invested in UBTI-generating entities may or may not be to your advantage. Consult a tax advisor on this issue and others related to UBTI.
