Before you roll overWhat a retirement account costs, and what it forbids

When a tax-exempt IRA can still owe tax

By Kaz · Verified 20 August 2026 · How this site checks figures

Once its gross unrelated business income reaches $1,000 for the tax year. Publication 598 then requires the IRA's own Form 990-T by the 15th day of the 4th month after the end of its tax year, and the income is taxed at trust rates.

An IRA is exempt from tax on the investment income it receives, which is why most owners never see a return for it. Exemption is not unconditional, and the condition is about the character of the income rather than the identity of the account. Where it fails, the account is the taxpayer and the owner has taken nothing out.

Updated 13 October 2026 — figures last checked 20 August 2026

An IRA has to file Form 990-T once its gross unrelated business income reaches $1,000 for the tax year. The return is the account's own: it is filed in the account's name, the tax comes out of the account's assets, and nothing has to have been distributed for that to happen. Whether an account ever gets there depends on what produced the income — a passive investment, an operating business, or property bought with borrowed money.

What makes the account a taxpayer

The character of the income decides it, not the status of the account. The Internal Revenue Service treats an IRA as an exempt trust for this purpose, and records that:

All exempt trusts subject to the tax on unrelated business income that, if not exempt, would be taxable as trusts are taxable at trust rates on that income.

Which income counts is set out in Publication 598, Tax on Unrelated Business Income of Exempt Organizations, mostly by listing what does not. It excludes "all dividends, interest, annuities, payments with respect to securities loans" from unrelated business taxable income, and gives separate exclusions for royalties, for rents from real property, and for gains or losses from selling property, each with its own listed exceptions. Every one of those exclusions carries the same limit, in the publication's words: "This exclusion doesn't apply to unrelated debt-financed income."

When does the filing obligation start?

$1,000 of gross unrelated business income for the tax year is the point at which a return is required. Publication 598 also covers a specific deduction of $1,000 available in computing unrelated business taxable income. On who files and when, the publication says:

The Form 990-T of an employees' trust described in section 401(a), an IRA (including a traditional, SEP, SIMPLE, Roth, or Coverdell IRA)...must be filed by the 15th day of the 4th month after the end of its tax year.

Two things sit inside that sentence. The account types are named individually, so the obligation does not turn on which of them is held. And the deadline runs from the end of the account's tax year, not from anything on the owner's own calendar.

Debt-financed income: what this page does not compute

Borrowed money is the route by which ordinary investment income can still count. Because each exclusion stops at unrelated debt-financed income, a dividend, a rent or a gain that would be excluded in an unleveraged account can fall back into the calculation when the property behind it was bought with debt. How much of that income counts is worked out in the debt-financed property section of Publication 598, at https://www.irs.gov/publications/p598. This site's ledger has not confirmed that computation, so no rate, formula or percentage for it appears here.

Trigger map: what produced the income

Passive investment income — dividends, interest and gains on listed shares, pooled funds and cash
What follows → Excluded from unrelated business taxable income by Publication 598, unless the property behind it was bought with borrowed money
An interest in an operating business held inside the account
What follows → One of the two places the question arises. Ask the custodian in writing for the account's gross unrelated business income for the tax year
Borrowed money used inside the account, or property bought with it
What follows → The other place it arises. The exclusions above do not apply to unrelated debt-financed income, and the computation for it is not reproduced on this page
Gross unrelated business income of $1,000 or more for the tax year, from any of the above
What follows → A Form 990-T is required by the 15th day of the 4th month after the end of the tax year, and the income is taxed at trust rates

This restates the threshold, deadline, rate basis and investment-income exclusions only. It does not compute how much debt-financed income counts, and it does not classify a particular business interest.

Source: Publication 598, Internal Revenue Service, as listed in Sources.

Does an ordinary IRA of shares and funds ever owe this tax?

No, not from dividends, interest and gains on holdings bought without borrowed money, because Publication 598 excludes those types of income from unrelated business taxable income. The exclusions follow the type of income, not the name of the holding, so the figure that settles it is the custodian's statement of income by type rather than the label on the fund. What such an account is permitted to hold in the first place, and who it may deal with, is a separate constraint with a separate and severe consequence, set out in what section 4975 forbids.

What the return costs

Preparing and filing a return is an administrative cost the account bears. Who does the work, and on what basis it is charged, is a question for the custodian or administrator rather than for this site, and no figure for it appears in this site's ledger, so none is stated here. It is a question to put in writing before an asset of this kind is bought, alongside the fee schedule.

Where the tax sits among the account's costs

A Form 990-T is not a line on a fee schedule, but the tax it reports leaves the account in the same way a charge does. Where unrelated business taxable income remains after the $1,000 specific deduction for the tax year, the tax is paid from the account's assets, and the amount paid stops compounding inside the account. What a recurring percentage does to a balance over time is set out in what it costs, and a disclosed annual charge can be run through the fee calculator. Which account is open at all is the prior question, worked through in which US retirement account can you actually open.

So what do you do

If the custodian's figure for the account's gross unrelated business income is $1,000 or more for the tax year, a Form 990-T is required by the 15th day of the 4th month after the end of that year, and the income is taxed at trust rates. If the figure is below $1,000 for the tax year, that filing requirement is not triggered, which can only be said once the figure exists. Otherwise, do not decide yet: where the statement does not break the figure out, ask the custodian in writing for the account's gross unrelated business income for the tax year and for the name of whoever prepares and signs the return, and treat the absence of a line on a statement as an absence of information rather than an absence of income.

What to check next

Two things, in this order. The custodian's figure for the account's gross unrelated business income for the tax year, in writing, and the name of whoever prepares and signs a Form 990-T if one becomes due. Then Publication 598 itself, for the exceptions attached to each exclusion and the debt-financed computation this page does not reproduce.

Frequently asked questions

Does the owner pay this tax, or the account?

The account. The Form 990-T named in Publication 598 is the account's own return, filed for the employees' trust or IRA rather than by the owner as an individual, and the income is taxed at trust rates. The owner may have taken no distribution at all in the year in question, which is what makes the mechanism surprising.

Is a Roth IRA outside the filing requirement?

No. The quoted sentence names a traditional, SEP, SIMPLE, Roth or Coverdell IRA, and an employees' trust described in section 401(a), and applies the same deadline of the 15th day of the 4th month after the end of the tax year to each of them. Tax-free qualified distributions later are a separate matter from the account's own liability now.

Is the $1,000 a threshold or a deduction?

$1,000 is both, in Publication 598: the level of gross unrelated business income at which a Form 990-T is required, and the specific deduction available in computing unrelated business taxable income. As an example, an account with gross unrelated business income of exactly $1,000 for the tax year has to file, and subtracting the specific deduction alone, $1,000 − $1,000 for the tax year, leaves no taxable amount before any other deduction is counted. The filing requirement and the amount of tax are separate questions.

Sources

The charges that apply whether or not a return is due

A return of this kind is one cost among five, and the other four apply to every account. Each comes with the question that produces a number rather than a reassurance.

See where the money actually goes

Written by Kaz, an independent publisher.
Sources: official tax authority and regulator publications only. Figures last verified 20 August 2026. How they get here is on the editorial method page.
Corrections: the contact form.

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