Generally speaking, there are two main investment categories that would generate UBTI in retirement accounts.
When Does UBIT Occur?
Limited Partnerships (LPs), Limited Liability Companies (LLCs), and similar entities (such as parternships, limited liability partnerships (LLPs), etc.) that are involved in an unrelated business/operating company. (Note: Investments in C-Corporations generally do not incur UBIT because taxes are paid at the corporate level.)
Debt financing and leveraged investments, most commonly found through real estate investments utilizing non-recourse financing rather than paying 100% cash from the account.
If there is $1,000 or more of UBTI in those retirement plan investments, a Form 990-T is required to be filed. The IRS grants a specific deduction on the first $1,000 of UBTI.
Additionally, if a loss is to be carried forward or backward to offset profits in future or prior years, a filing is also necessary regardless of the $1,000 specific deduction. It is encouraged to review your situation annually to ensure you are accounting for all applicable UBTI.
To help determine if UBIT may apply to your situation: UBIT Professional Diagnostic Quiz
Which Retirement Accounts Incur UBIT?
Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, CESAs (Educational IRAs), qualified state tuition plans such as 529s, Archer MSAs, and HSAs (Health Savings Accounts). Most charities, universities, and other non-profits are also included.
Qualified plans, such as 401(k) plans, may also incur UBIT but are subject to special rules. Please contact UBIT Professional for more information regarding UBTI within qualified plans.
For more information please see IRS Publication 598.