Most investors assume that IRAs and nonprofits don’t pay federal taxes — and under normal circumstances, they’re right. These vehicles are generally intended to be tax-exempt, allowing assets to grow or serve their missions without interference from the IRS. But not all income qualifies for that privileged treatment. One such example is Unrelated Business Taxable Income (UBTI), a lesser-known exception that can trigger surprise tax bills for unsuspecting investors. Whether it’s income from a leveraged real estate deal or a private equity investment inside a self-directed IRA, UBTI can complicate an otherwise tax-advantaged strategy. Here’s what investors need to know about how UBTI works, what can trigger it, and how to manage it effectively. What Is UBTI? UBTI refers to income earned by a tax-exempt entity (e.g., IRA, 401(k), or nonprofit) from a business activity that’s unrelated to its core mission or purpose. Alas, tax-exempt doesn’t mean tax-immune. While most forms of passive income (like dividends, interest, and capital gains) retain their tax-advantaged treatment inside IRAs or nonprofits, certain types of income do not. UBTI can arise when a tax-exempt account engages — directly or