I was wanting to add KMP to my Roth IRA account, but apparently Sharebuilder won't let me. It says "KMP can not be purchased in this account. ShareBuilder restricts the purchase of Limited Partnership securities by ROTH accounts."

I don't really know what that means, but they'll let me buy KMI. Dividend in KMI appears less, but it looks like the two stocks parallel each other. Is KMI still a good purchase for a relatively low risk long term investment? Or should I look for some broad based ETF right now?

Thanks

KMP is a Master Limited Partnership. MLPs are a unique investment--they can trigger tax implications inside IRAs if the unrelated business taxable income (UBTI) exceeds $1000. They also typically issue a K-1 tax form instead of a 1099.

KMI is a typical corporation. KMI (Kinder Morgan) operates several other LLCs and LPs, including KMP.

They most likely won't let you purchase it in a Roth because of the UBTI possibility. Taxes on MLPs can be complicated--don't let that dissuade you, just make sure you understand the implications before investing.

You want to own KMR in a retirement account because it pays you primarily is shares instead of cash. Owning KMP, you could have an immediate tax liability in your retirement account.

http://www.dividendgrowthinvestor.com/2009/05/mlps-for-tax-deferred-accounts.html

quote:

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You don't ever pay taxes on a dividend from a MLP in a retirement account. Even if UBTI was triggered which it never is that is tax owed by the brokerage, not the individual.

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While it may not be likely, I wouldn't say never. First, the UBTI $1000 trigger is from all sources in an account, so if you have 3 MLPs with a $400 each, your brokerage has to file the 990-T and pay any taxes owed out of the funds of the account.

Of course, you'd want to check with your brokerage to see if they charge for the 990-T as well.

Much of the MLPs distributions (not dividends) are considered a return of capital, and therefore goes untaxed. This is a benefit you lose out on in qualified accounts.

There are pros/cons to holding MLPs, and pros/cons to having them in qualified accounts. Just make sure you are aware of the implications before you invest.

In some ways, they remind me of the Canandian Royalty Trusts before the Canadian government closed the tax benefits. Not saying they with have the same fate-just some similarities between the situations.