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I have my investments in a mix of 4 ETFs (US, Intl, REIT, and bonds) and I'm thinking about shifting about 5-10% into a commodity ETF. In particular, I'm looking at GSG.

I've heard that commodity ETFs can create tricky tax consequences. How burdensome is it to report taxes for an ETF like GSG? Is it easier if it is in a retirement account, such as a rollover IRA?

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I had a commodity ETF at one point, and it sent me a Schedule K-1 like a partnership. This requires a little more work because you have to map the boxes on the Schedule K-1 to the various parts of your personal return, and, in my experience, standard commercial tax software (specifically TurboTax and HR Block) have spotty support for this. It will depend in part on the ETF and what the ETF held / did during the year.

It is a bit easier a retirement account because then you don't generally need to file a return on the income and these problems "mostly" go away. In theory, if the ETF derives income from things like loans, you could have to file a return on your retirement account that you otherwise would not have had to file, but you probably won't hit this case. It would trigger if you had excess "unrelated business income" (UBI) - Last I saw the threshold was $1000, which you probably won't get. Even in a tax-advantaged account like an IRA, UBI is taxable above the threshold.

  • Based on this page it looks like K1 is exactly correct - this is presumably organized as a LP similar to other futures-trading ETFs. It'll have a blended capital gains rate (so ~28% at the max). – Joe Jan 6 '16 at 21:13
  • @Joe I don't really understand your point about the K-1 adjusting a cost basis. I think the answer is "no" though because I'm not sure what cost-basis could come into play here at all. If you have Roth, then you pay no tax at withdrawal regardless of your costs. If you have traditional, you pay regular income tax at withdrawal regardless of your costs. If there's something to this, I'd be very interested to know - Either here or maybe it's a question onto itself, depending on what you meant. – user32479 Jan 6 '16 at 22:04
  • Ah, that makes sense... I'm not well enough versed in IRAs yet (fortunately 30 years short of needing to be!) to remember that you're not taxed based on capital gains on IRA income, but on the total amount of the withdrawal. – Joe Jan 6 '16 at 22:07
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    Interesting, never heard of UBI before. This link has a good explanation of that. According to this link, it looks like you will usually avoid UBI for a commodities ETF. – gaefan Jan 6 '16 at 22:17
  • Thanks so much for the info about UBI. I never heard of it before. – Jack Swayze Sr Jan 7 '16 at 11:21

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