Tax paid on UBTI in traditional IRA account

Forum|Forum|2 years ago
March 13, 2024
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I was forced to pay tax on UBTI in traditional IRA account. How do I track the UBTI amount so that I don't get taxed again in the future when it's time to withdraw?

Not A Product Question

dmertz

Employee

The UBTI had to be paid by the IRA using funds within your IRA, not paid by you personally. The payment from the IRA simply reduces the balance in your IRA, therefore reducing the amount on which taxes will be paid in the future.

If you paid the UBTI personally (which would generally be improper), that would have to be considered to be a regular contribution to your IRA for the year in which the payment was made, subject to the ordinary limitations on IRA contributions.

njggomaAuthor

The tax was paid out of my IRA account. My question was, if I paid $10K in tax for $40K UBTI, I need to document that $40K is taxed money and I shouldn't have to pay tax on that much of money when it's time to withdraw in the future. Is that not right?

dmertz

Employee

It doesn't work that way. What you paid in UBIT does not add to your basis in nondeductible traditional IRA contributions or any way change how future IRA distributions will be taxed. UBIT is an extra tax.

Even if the investment had been held outside of an IRA, paying UBIT would not increase your basis in the investment.