Can an LP Be Held in a Roth?

Planning for retirement is important

A Roth IRA is a type of account with certain tax advantages for retirement planning. Holding a Limited Partnership (LP) investment in a Roth IRA is permissible by law, however the General Partner of the LP may decline a Roth IRA due to its non-taxable status.

Features of an LP

Limited Partnerships are investment vehicles that usually have pass-through taxation. This means that taxes paid on capital gains and other income are passed on to the investors, and not paid by the partnership itself. Investors receive a K1 detailing how much tax is owed each year.

Features

The pass-through taxation scheme requires that investors carry a proportional share of the tax burden. If an investment is non-taxable (a Roth IRA, for example), this may unfairly penalize taxable investors in the partnership. For this reason, the General Partner may decline a Roth IRA investment.

Expert Insight

Many fund managers offer domestic LP's for taxable US investors and offshore registered funds for non-taxable US investors. These offshore funds typically invest with the same strategy and carry the same returns as the LP. Check with your investment manager to see if this option is available.

References

• Quick MBA: Limited Partnerships