Rocket Dollar Knowledge Base

When do I trigger Unrelated Business Income Tax (UBIT) and what do I do about it?

Unrelated Business Income Tax

What typically triggers UBIT?

  • Passive Investments with ordinary income
  • Rental Income
  • Interest Income
  • Dividend Income
  • Capital Gain Income
  • Royalty Income

What should I know about UBIT?

If your Self-Directed Solo 401(k) or Self-Directed IRA invests in an operating business, like a limited partnership (LP) or LLC, that sells goods or services and generates more than $1,000 in UBIT the 401(k) or IRA must file IRS Form 990-T and pay the tax due from the 401(k) or IRA.

A C Corp will pay corporate tax so C Corps do not trigger UBIT. Interest and dividend income is exempt from UBIT. Rental income and real estate capital gains are also exempt from UBIT if the real estate was held for longer than 1-year. The tax rate for UBIT matches the tax rate for trusts.