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ETFs like DBC (limited partnership) and IAU (gold bullion) in an IRA

LLJB
in Off-Topic
My understanding is that DBC does not cause tax issues in an IRA because it holds futures contracts and doesn't generate UBTI. I also understand IAU is not a prohibited transaction and is not considered as a distribution when purchased in an IRA because the IRS has determined you own the ETF rather than the bullion itself.

Does anyone have experience with these ETFs in an IRA and whether you've encountered any issues with the IRS or your custodian?

Thanks!!

Comments

  • Tony
    This is the latest guidance that I found:

    http://etfdb.com/etf-tax-efficiency/etf-tax-tutorial-complete-list-of-etfs-that-issue-a-k-1/

    I see DBC on the list, but not IAU.
  • LLJB
    Thanks @Tony!! IAU issues a 1099 but according to IRS regulations precious metals, which are considered collectibles, are a prohibited transaction for an IRA, except that I believe the IRS has clarified that they don't consider these gold trusts that buy physical gold as an investment in a collectible but rather an investment in a "stock". If IAU was considered an investment in a collectible then it would be deemed a distribution from my IRA and I'd pay tax plus the penalty on whatever I invested, and then I'd calculate taxes for the gold on a mark-to-market basis rather than just when I sold the etf.

    With DBC, they are in fact a limited partnership and the issue a K-1 but in an IRA the only thing that can cause a tax obligation, based on my understanding, is Unrelated Business Taxable Income. My understanding is that DBC shouldn't incur UBTI because they just hold futures contracts and they don't have any "business operations". If my understanding is correct then DBC shouldn't cause any problems in an IRA but if it did end up with UBTI then you'd have to pay tax and you'd get taxed again when you take distributions.

    In both cases I believe there's no issue but I figured if anyone else had contradictory, or even supportive, experience then it could suggest more research is needed or make me feel better about the research I've done.
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