- ShindelRock - https://www.shindelrock.com -

Is your tax-free IRA really tax-free?

[1]According to a recent article [2] in The Wall Street Journal, taxpayers should beware that as IRAs grow in size, so does the potential for taxes on these accounts if they have investments in alternative assets such as hedge funds, private-equity funds, limited partnerships, operating businesses and real estate.

Some IRA sponsors have stepped up attention to this issue. Fidelity Investments added a system to track taxable income in IRAs beginning in 2016, and the first notices will be going out this tax season, according to a spokesman.

The reason why there are taxes on an apparently tax-free account stems from Congress’s decision decades ago that nonprofits shouldn’t unfairly compete with taxable firms.

There is no tax if the IRA has interest, dividends and gains from the sale of stock, which is the income generated by most stocks, bonds, mutual funds, and ETFs. But the rules do impose taxes when an IRA invests in operating businesses that pass profits and losses directly to the owners, such as partnerships and limited-liability companies. They also can tax IRA income that is debt-financed.

As more IRA owners look to invest in alternative assets for accounts large and small, here’s what to know.

Read the full article at https://www.wsj.com/articles/are-taxes-lurking-in-your-tax-free-retirement-account-1489141814 [2].