What is the best account to hold MLPs in?

Where Should You Hold MLPs? IRA-Friendly Options Explained

If you’re investing in Master Limited Partnerships (MLPs), one of the first things you’ll want to consider is where to hold them. MLPs, known for their high-yield distributions, come with unique tax implications—most notably, they issue a Schedule K-1 instead of a 1099-DIV, which can complicate tax reporting in retirement accounts.

Because of this, many investors wonder: Can I hold MLPs in my IRA? Technically, yes—but it’s often not the most tax-efficient move. MLPs generate what’s called unrelated business taxable income (UBTI), and if that crosses a $1,000 threshold within a tax-deferred account like a traditional or Roth IRA, the IRA itself may owe taxes. That defeats one of the core benefits of tax-advantaged accounts.

Instead of holding individual MLPs directly in an IRA, a smarter alternative is to invest in IRA-friendly funds that hold MLPs or similar energy infrastructure assets. These funds—often structured as C-corps or mutual funds—convert the K-1 income into ordinary dividend income, reported cleanly on a 1099-DIV. That makes them fully compatible with IRAs and simplifies tax reporting.

Three popular options include:

• Alerian MLP ETF (AMLP) – Offers exposure to a basket of energy MLPs while distributing income as qualified dividends.
• Tortoise Energy Infrastructure Corp (TYG) – A closed-end fund that invests in midstream energy companies and is structured to avoid K-1 issues.
• Fiduciary/Claymore MLP Opportunity Fund (FMO) – Another closed-end fund that provides diversified MLP exposure without the tax headaches.

These funds allow investors to benefit from the high yields and stability of MLPs while staying IRA-friendly. So while you can hold certain MLPs in your IRA, choosing the right type of investment—like stocks, bonds, or specially structured funds—makes a big difference in long-term efficiency and simplicity.