Self Directed IRA valuation tips by Terry While of Sunwest Trust. Terry explains the importance of accurately calculating the value of the tangible assets in a self directed IRA.
Terry just returned from the Retirement Industry Trust Association (RITA) meeting held in Washington DC. At the RITA event, regulators from both the IRS and Treasury discussed the importance of accurately calculating the Fair Market Value (FMV) of a self-directed IRA account. Truly self directed IRA accounts are made up of nontraditional assets that don't have a readily available market value.
Traditional investments are easy to value. If you invest in stocks & bonds with your self directed IRA, you can go to the New York Stock Exchange or NASDAQ and readily acquire the price of stock. However, if you own a single family residential property in your account. The fair market value of the self directed IRA account is not as easy to value.
As an IRA custodian, when you sign up for a new self directed IRA account, you must agree to provide us with the fair market value of the assets within your self directed IRA account annually as of December 31st. At Sunwest, we require that you provide us those valuations by the end of March of the following year.
For all assets, we require a third-party evaluation. We don't need an annual appraisal of the tangible assets in your self directed IRA every year because that would be cost prohibitive.
Also, if you have an asset, e.g. you only have invested a few thousand dollars in a friend's private LLC, it probably wouldn't be worth hiring an appraiser to appraise the value of that company. In that instance, we would just ask you to contact the CFO of the company, or the owner of that company have them provide you in writing with something explaining what the value of that company is and how they came up with that number and then you would in turn provide Sunwest Trust with the documentation.
If, however, we're talking about a piece of real estate, instead of pulling numbers out of thin air. We would ask that you contact a realtor who can run three valuations on properties comparable in size in the area you own the real estate, so we can see that there's actual documentation,
These self directed IRA asset valuations are what we report to the IRS every year on Form 5498. Now it is important we receive the proper assessment of your self directed IRA, because we have to report the fair market value to the IRS, but also it's important for the overall health of your asset portfolio.
If you're not looking at your investments, check them once a year & see if it's still growing in value or if you're still comfortable with that asset you know, more importantly than if you're buying real estate I think it would be. If you're buying interest in a small closely held company to contact the owners of the company and find out what your interest is worth.
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As you approach mandatory taxable events in your life, it's prudent to start liquidating your hard assets from your self directed IRA because it is simpler to value the cash in your account. Anytime there are certain taxable events that affects your IRA where we need to know the precise value of your account, and we're going to require an appraisal. For example, an appraisal will be required if you have to take a Required Minimum Distribution (RMD), you decide to convert to a Roth IRA, or you pass away.
The IRS in these cases wants precisely to know what the IRA is worth. They don't want anybody arbitrarily judging the value of their IRA's asset values so as to pay less in taxes. e.g. If you are taking an RMD, the IRS wants you to take the distribution at the fair market value and pay tax on the appropriate amount, which why Sunwest Trust requires a self directed IRA appraisal.
A self directed IRA appraisal is not required if you voluntarily decide to take cash out of your IRA account as a distribution.
Obtaining an accurate, fair market value can be challenging. Therefore, we rely on you. It's one of the reasons why most banks & other custodians don't allow you to invest in assets that are hard to value.
Terry White of Sunwest Trust shares Self Directed IRA Valuation!
Interested in learning more about setting up a self directed IRA, then, watch: http://bit.ly/tips-setting-up-self-directed-ira