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A family member has a Roth IRA and she just received an IRS Form 990-T from Fidelity. She was mainly trading with her Roth IRA, which was suppose to be tax free until retirement age.

Does she need to pay for taxes on the gains she made with her Roth IRA? What is the IRS Form 990-T for then?

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Form 990-T is for Unrelated Business Taxable Income, and Fidelity happens to have a nice help page about the form explains exactly why.

From their page, this is probably what's generating it:

UBTI tends to be generated by the following types of investments:

Limited partnerships (LPs)—businesses owned by more than one person, with limited liability to the owners for business debt

Master limited partnerships (MLPs)—a type of LP that is publicly traded and often found in the energy sector

Fidelity in this case is filling out the form on your behalf, and paying the tax from your IRA (or your family member's IRA, in this case), so it should mostly be painless on your side.

If you don't fully understand what to do at this point, follow up with a tax professional.

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  • Thanks for the response. But what we're both wondering is does she have to pay taxes on these gains from her Roth IRA account? She didn't withdraw anything, just made a few trades during 2020 and earned a profit. – Patoshi パトシ Feb 26 at 18:30
  • @Patoshiパトシ There is a tax implication, and the Form 990T is how those taxes are paid. Again, Fidelity's page explains this - they should be paying them on your behalf. Read the form carefully, and if you have more questions call Fidelity and ask them - they should be able to explain what they're doing here. We can't tell you what your tax burden is, but if they sent you a (copy of a) 990T, then it seems likely there are taxes (probably from some investment - did she buy any oil funds or weird REITs or something of that sort?) – Joe Feb 26 at 18:32
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    This is why many people don't buy MLPs in their retirement accounts, to avoid triggering UBTI. – Orange Coast- reinstate Monica Feb 26 at 22:27
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There are many different reasons for form 990-T, and without seeing it is hard to guess what it was for.
It could even be that some organization is telling you that they already paid taxes which you will get reimbursed as you had it in an IRA Roth:

IRAs and other tax-exempt shareholders in a RIC or REIT. If you are an IRA or other tax-exempt shareholder that is invested in a RIC or a REIT and file Form 990-T only to obtain a refund of income tax paid on undistributed long-term capital gains, follow steps above under Claim for Refund (including special instructions for IRA trustees); check the applicable box in item H at the top of Form 990-T; and attach Copy B of Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.

Check the IRS website which type it exactly is: https://www.irs.gov/instructions/i990t

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