Tax and financial advice from the Silicon Valley expert.

New – Self-directed IRA and Roth accounts must be valued each year

Minimum distributions are required to made from an IRA when the IRA is an inherited account and when a participant-owner reaches age 70 ½. The same requirement applies to inherited Roth IRA accounts. In order to compute the required minimum distribution, the fair market value (FMV) at the beginning of the year must be known.

Optionally for 2014 and required thereafter, the IRA custodian should report the fair market value of the assets held in the account as of December 31 of the year. The IRS has issued instructions for Form 5498 stating that the FMV for certain specified assets should be reported together with codes for the related assets. One of the specified assets is real estate.

The IRS has not specified how these assets should be valued. If appraisals are required, the cost of maintaining self-directed retirement accounts could increase dramatically, possibly prohibitively.

I asked a representative for the custodian industry who will be responsible for getting the valuation amounts. The response was the custodian will report amounts provided by the account owner. If the account owner can’t provide the information, the custodian will resign from the account.

Tax and financial advice from the Silicon Valley expert.