Self-Directed IRA Year End Fair Market Valuation

QUESTIONS:

I purchased a private placement in an LLC through my self directed IRA. I am told I now need to have a form completed about the fair market value of the investment.

1. What is a practical way to comply with the form?

2.  What happens if I can’t get the information to comply with the request?

ANSWERS:

The custodian is asking for the valuation because it influences the total value of the IRA reported on Form 5498 which is due to the IRS each May. The value of the private investment has to be reported in boxes 15a and 15b of Form 5498. You can view a form 5498 via the following:

https://www.irs.gov/uac/about-form-5498

Also, the IRS is in the process of providing more guidance regarding this annual valuation requirement.  (see recent GAO Report: Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets)

The private investment sponsor is the one that will need to provide this valuation. The investment sponsor often-times will work with a third-party valuation company to perform the valuation for the entire private investment.

If the valuation is not provided, the IRA custodian may be forced to resign from your IRA or that particular investment, which means you would need to transfer it to another self-directed IRA or a self-directed solo 401k to avoid taxes and possibly penalties.

 

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About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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