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Because of tax related issues I do not like MLPs in Mutual Fund or ETF format. ETN format might be better for tax as it is actually an unsecured debt obligation of the issuer (which is also its negative, that is ETN carries the credit risk of the issuer).
They do generate a K-1 and if one does not mind the implications of that both in terms of taxes and filing issues, then I don't think MLPs are a problem. I own a couple of them, but neither relates to energy.
agree with investor. the issue is more technical.. but MLP s should not be entered into via ANY fund vehicle, either open end, closed-end, ETF or ETN -- all have various tax issues which drastically reduce the benefit for the shareholder. If you like the space, you should select individual issues.
AFAIK, same tax issues. Fund has to generate K-1s to you or pay corporate taxes as a corporate level which will reduce your return and you will be double taxed on your gains. I think Steelpath does the later (i.e. pay corporate taxes) Check fund documentation.
I am not a tax expert buy holding MLP's that generate K1 in IRA also has complications. You could still be subject to "Unrelated business income" taxes in your IRA.
To Fundalarm, Please explain why MLPs should not be bought in funds. I am under the impression that ETNs are treated differently and do not necessarily generate K-1s I will appreciate your more detailed comments. Thanks
Some CEF/ETFs have K-1's - the United States Commodity Index (USCI) fund, Nuveen Commodity Fund (CFD) and the Ishares Alternative (ALT) are among non-MLP's w/k-1's.
Reply to @Alex/FA I do held evep energy partners for the past 2 yrs, I don't have any regrets about this stock. Filing tax was not a problem if you have turbo tax [I did not have to do anything, just link it w/ BOA investment acct and everything worked itself out]...good luck
MLP ETF's & ETN's DO NOT generate K-1's. see AMJ or AMLP. For reference, the following link explains the structure of these MLP ETF & ETN's and what they invest in specifically.
Maybe I missed it, but I don't where in this article it says what ETNs invest in. All I can find is a sentence referring to the businesses of MLPs, and that is incomplete: "90% of the MLP’s income needs to come from real estate, commodities or natural resource services and operations to qualify for the tax perks". This description omits financial MLPs like the Blackstone Group (BX).
It concludes with the assertion that "The only drawback to an ETN is that it represents an unsecured obligation of a bank behind it." Perhaps I'm reading too much (or not enough) into this statement, because what it says to me is that the only unique risk of the ETN structure (i.e. beyond the risks of investing in MLPs, and in securities in general) is the risk of default. But there are other ETN-specific risks. Some ETNs are callable. Quoting from Alerian Infrastructure ETN prospectus Selected Risk Factors: "UBS may elect to redeem all outstanding Securities at any time .... If UBS exercises its Call Right, the Call Settlement amount may be less than the Principal Amount of your Securities."
(Part of the reason I didn't use ALJ's prospectus is that JP Morgan doesn't post it on its site, referring readers instead to the SEC. Yet their FAQ keeps saying: as we said in our prospectus and supplement .... I'm inherently suspicious of any offering where the company makes it as difficult as possible to find its legal disclosures. But it has the same call problem.)
Reply to @mobryon: Your article does not even talk about K-1 and did not even mention an ETF. It only referenced a single ETN. If you are basing your facts on this article, I am sorry it is very inadequate. In fact, the quality of article that is supposed to be "All about MLP ETFs" is very poor. It is very little about subject matter which is in fact complex.
Since ETN is a debt obligation of the issuer it is possible that it will not generate a K-1. You need to investigate the prospectus of the particular ETN provider.
Also, as I said earlier, the mutual fund or ETF that is structured as a C corp. will not generate an ETN but it will pay business taxes which is totally undesirable.
Others will have to pass through income through K-1 and you will have to pay taxes in your IRA if the Unrelated Business income is > $1000.
I got a K-1 from a silver ETF last year in my IRA. I did not pay any taxes on it because it did not generate any Unrelated Business Income. You are more likely to pay UBI for MLP ETFs. Anyway, the devil is in details. Read the prospectus. Ask the company.
Reply to @mobryon: since you're quoting from seekingalpha, please search for dan plettner. he dedicated many articles to MLPs in different structures, and each and everyone structure has its own drawbacks. K-1s are NOT the issue -- deferred tax liability is -- it eats a huge portion of the return. Ron Rowland also wrote about them and can also be accessed via seekingalpha on the subject. Registered Investment Companies (ie mutual funds and ETFs) can't have more than 10% of so called "bad income" which MLPs produce and therefore are set out to be taxed at corporate tax rates. Plattner's analysis of some closed-end funds is very telling. ETNs also have tax issues, but they are totally different, and in all honesty, i don't recall them at the moment. You do need a bit more research then this introductory piece by ETF trends. This is one asset class where it might be prudent to pick up individual issues. I remember i did some work about 2 years ago and decided against investing in the asset class since i don't do individual securities. Additionally, one of our entities which "missed" the MLP's issue, had to file back state tax returns in each of the states through which had the MLP's pipelines -- about 20 in all, with annoying if ANY tax liability, but the filing had to be done and was overall costly.
Comments
Take a look at:
http://www.moneyandmarkets.com/add-energy-income-with-an-mlp-etn-38995
http://investwithanedge.com/morgan-stanley-becomes-etn-issuer-with-new-mlp-product
See also the following related to the subject:
http://investwithanedge.com/index.php?s=amlp
http://investwithanedge.com/amlp-dirty-little-secret
Alex
AFAIK, same tax issues. Fund has to generate K-1s to you or pay corporate taxes as a corporate level which will reduce your return and you will be double taxed on your gains. I think Steelpath does the later (i.e. pay corporate taxes) Check fund documentation.
I am not a tax expert buy holding MLP's that generate K1 in IRA also has complications. You could still be subject to "Unrelated business income" taxes in your IRA.
I will appreciate your more detailed comments. Thanks
I do held evep energy partners for the past 2 yrs, I don't have any regrets about this stock. Filing tax was not a problem if you have turbo tax [I did not have to do anything, just link it w/ BOA investment acct and everything worked itself out]...good luck
http://seekingalpha.com/article/217983-all-about-mlp-etfs-and-etns
It concludes with the assertion that "The only drawback to an ETN is that it represents an unsecured obligation of a bank behind it." Perhaps I'm reading too much (or not enough) into this statement, because what it says to me is that the only unique risk of the ETN structure (i.e. beyond the risks of investing in MLPs, and in securities in general) is the risk of default. But there are other ETN-specific risks. Some ETNs are callable. Quoting from Alerian Infrastructure ETN prospectus Selected Risk Factors: "UBS may elect to redeem all outstanding Securities at any time .... If UBS exercises its Call Right, the Call Settlement amount may be less than the Principal Amount of your Securities."
(Part of the reason I didn't use ALJ's prospectus is that JP Morgan doesn't post it on its site, referring readers instead to the SEC. Yet their FAQ keeps saying: as we said in our prospectus and supplement .... I'm inherently suspicious of any offering where the company makes it as difficult as possible to find its legal disclosures. But it has the same call problem.)
Since ETN is a debt obligation of the issuer it is possible that it will not generate a K-1. You need to investigate the prospectus of the particular ETN provider.
Also, as I said earlier, the mutual fund or ETF that is structured as a C corp. will not generate an ETN but it will pay business taxes which is totally undesirable.
Others will have to pass through income through K-1 and you will have to pay taxes in your IRA if the Unrelated Business income is > $1000.
I got a K-1 from a silver ETF last year in my IRA. I did not pay any taxes on it because it did not generate any Unrelated Business Income. You are more likely to pay UBI for MLP ETFs. Anyway, the devil is in details. Read the prospectus. Ask the company.