Lynn asks the following question

Q: I have started taking classes on trading and have done some in my retirement account. I have learned about some ETFs which are held as partnerships. These send out a K1 each year with taxes due even if no gains were realized. What happens when these are held in a retirement account? Are the taxes "contained" within the retirement account? or are there taxes due the owner has to pay?

A: There would be no taxes to pay in the retirement account until you take the money out. That is the nature of a "deferral" plan, such as an IRA, 401(k) or pension plan. A deferral plan generally pays no tax and you pay ordinary income tax when you take it out. While you are postponing the tax, you are postponing it to a higher tax bracket, since capital gains and dividends are taxed at 15% when earned outside of a deferral plan and at ordinary income tax rates when distributed from a deferral plan.

So, you pay fewer taxes today or more taxes later. Interesting choice, isn't it?

Warmest regards,

Tom