Which are better suited for IRAs and tax deferred retirement accounts, Canadian trusts or master limited partnerships (MLP)?
The best investments to put in an IRA are always those that will build a maximum amount of wealth over time. There are many trusts and MLPs that fit the bill, just as there are plenty of both that I wouldn’t touch with a 10-foot pole. The key is the strength of the underlying business. No yield is worth chasing if there’s not a healthy and growing business backing it up. That said, there are some tax implications worth pointing out. First, if you put MLPs into an IRA you lose the tax advantage of return of capital forever. Instead, you pay the same tax on accumulated dividends and capital gains as on anything else held in that account as you withdraw the funds. In contrast, if you hold an MLP outside an IRA you can usually defer any and all taxes until you sell, so what’s the point of putting it in an IRA? There’s also the question of unrelated business taxable income (UBTI), which is owed on MLPs whether you hold them in IRAs or not. And either you or the trustee will have to be sure
