What is UBTI or UDFI, and how does it affect retirement accounts?

If a retirement account invests in a deal that uses leverage (such as a mortgage), it may generate Unrelated Debt-Financed Income (UDFI), which is a form of Unrelated Business Taxable Income (UBTI). This can trigger a tax liability inside the IRA, typically reported on IRS Form 990-T. Investors using retirement funds should consult a qualified tax advisor to understand the implications.