Written By Jenny Kiffmeyer, J.D – The Retirement Learning Center
My client was informed that she needs to file a Form 990-T for her retirement plan. What is the purpose of this form, and who prepares and files it?
Highlights of the discussion
Qualified retirement plans and IRAs generally are tax-exempt trusts. However, if the trust generates unrelated business taxable income (UBTI) of $1,000 or more in a year, the trust must file IRS Form 990-T, Exempt Organization Business Income Tax Return, and pay any tax due.
What is UBTI?
UBTI arises when a tax-exempt plan earns:
- Income from an active trade or business, or
- Debt-financed income (leveraged).
Common sources of UBTI within a plan include:
- Private equity, hedge funds, or limited partnership or company investments,
- Leveraged real estate (debt-financed income), and/or
- Certain alternative or “non-traditional” investments.
These investments typically issue Schedule K-1s, which may report UBTI to the plan.
Alternative assets do not inherently create UBTI. It depends on whether the investment generates business income or uses leverage, and how it is structured.
Some investments are structured to avoid passing UBTI through to the plan, including:
- Direct real estate held without debt,
- REITs (they block UBTI),
- C corporations (the tax is paid at the corporate level),
- Most publicly traded securities (e.g., stocks, bonds, ETFs), and
- Certain private funds structured with blocker corporations (which pay tax at the corporate level to prevent UBTI from reaching the plan).
Who is responsible for filing Form 990-T and paying?
The plan sponsor is legally responsible for ensuring Form 990-T is filed and taxes are paid. In practice, a CPA or third-party administrator (TPA) typically prepares and electronically files the form on behalf of the plan (using the plan’s EIN) through IRS e-file (MeF).
Payment of taxes is often a separate process from filing Form 990-T. The plan sponsor or trustee pays any tax due from plan assets (not employer assets). Payment is processed using the plan’s EIN and “Form 990-T” designation through the IRS’s Electronic Federal Tax Payment System (EFTPS) or IRS Direct Pay.
Filing vs. Payment: Two Separate Steps
| Action | System | Who’s Executes |
| File 990-T | IRS e-file (MeF) | CPA / TPA |
| Pay tax | EFTPS/Direct Pay | Plan Sponsor/Trustee |
Remember: Filing does not trigger payment, and payment does not file the return.
Best practices for financial advisors
- Collect and review all Schedule K-1s.
- Identify potential UBTI exposure early.
- Confirm who is preparing Form 990-T, if required.
- Ensure EFTPS is set up under the plan EIN.
- Coordinate timely tax payments from plan assets.
- Track deadlines (April 15 or extension via Form 8868).
Conclusion
UBTI can create unexpected Form 990-T filing and payment obligations for retirement plans. Advisors play a key role in identifying exposure, coordinating filings, and ensuring taxes are paid correctly and on time. For additional information, see
