Effective in 2015, it became mandatory that self-directed IRA custodians reveal to the government the types of hard-to-value assets held in self-directed IRAs. These types of assets include LLCs (commonly referred to as a single member IRA LLC) that are funded with self-directed IRA funds. This same rule also applies to distributions from self-directed IRAs. This new law will especially affect those who are required to take required minimum distributions (RMDs).
The reporting of hard-to-value assets is communicated to the IRS through the issuance of Form 5498. All IRA custodians are required to annually file this form with the IRS. Form 5498 reports the prior year’s ending value of the account and whether an RMD is required in the coming year. This new rule is started being enforced with the 2016 Form 5500-ez which reported the IRA information for the prior year (2015). The Form 5498 has added boxes where the self-directed IRA custodian is required to list the assigned code for assets such as LLCs and real estate that are considered hard-to-value assets.
This new form 5498 reporting of hard-to-value assets held in self-directed IRAs helps the IRS decipher which self-directed IRAs to audit more closely.
Solo 401k plans are not subject to Form 5498 reporting. Instead, solo 401k plans are subject to reporting the total value of the account on Form 5500-EZ once the total value exceeds $250,000. Just the total value of the plan is reported not the types of assets held in the solo 401k plan.
Self-directed IRA owners need to ensure valuations for hard-to-value assets held in their their self-directed IRAs (especially those who are taking distributions or are subject to required minimum distributions, and are processing Roth IRA conversions) list the true fair market value, as Form 1099-R reporting is also subject to the same hard-to-value asset reporting codes.