I want to share with you the basic responsibilities as one who plans on setting up a self-directed IRA. Understanding these basic facts will make tax time and investing much easier with your self-directed IRA. If you are using someone who will manage your self-directed IRA, these points will be very helpful.
Fair Market Value: As investors, we are required to report certain information to the Internal Revenue Service on an annual basis.
Included in this information is the estimated fair market value of your account. We are generally able to obtain a value based on public information such as market prices, note amortization, or appraised value from the asset provider for many assets. As noted in the custodial agreement, we may engage an outside appraiser to determine the value of an asset. The cost of an appraisal would be the responsibility of the account holder.
You may wish to minimize that cost by providing a third party appraisal. If we are unable to obtain a value in one of these methods, it will ultimately be your responsibility to provide an acceptable valuation.
Real Estate Investments: For those of you who have invested in real estate, annual appraisals are generally required.
We will be sending you further information regarding the requirements of the appraisal, but the general rule is to ensure that an independent third party, competent in the area where the real estate is located, completes the valuation.
Single Member LLC’s: Many of you have your account invested in a single member or family LLC where you are the manager. The requirement for these assets is for you to provide an annual valuation. This would mean that your CPA or accountant should provide a valuation of the LLC including all the assets it holds.
They should use an independent third party competent in the investment field that would complete the valuation. In addition, you will be required to acknowledge that none of the activities of the LLC constituted a prohibited transaction that would disqualify the entire IRA account. We may be sending you information regarding these requirements at a later date.
Valuation Process: If we are not able to value the assets held in your account as noted above, we will notify you and request that you assist in the valuation process. If no value is obtainable, we may elect to distribute the asset to you. This could pose a significant tax liability to you and therefore it is important that valuations of your assets are made available on a current basis.
There are several great firms out there to help you navigate these potential liabilities. Speak with your accountant for more information.
Don’t Forget the Roth… It is a belief among some commentators that your children are not as financially aware as you, their parents are. If that is the case, one of the best pieces of advice that you can give your children is the value of a Roth IRA.
If you get them to start early in their lives to begin thinking about their future, they will forever thank you. As soon as they start making money, in a summer job, after high school or college, impress upon them the value of making regular contributions to a Roth IRA for their future and help them set up an account.
The importance of tax-free compounding coupled with the advantage of tax-free withdrawals is an incredible way for them to enjoy the kind of retirement lifestyle you will want them to have.
Keeping these facts in mind, you too can enjoy the benefits of a self-directed IRA and can take control of your financial future, using your IRA to invest in stocks, bonds, and Real Estate.
Paul R. Whitacre is a managing partner at WealthyIRA.com. Our vision is to teach others to invest their IRAs and 401(k)s in the deepest discounted Real Estate in decades. Check out more at our http://www.WealthyIRA.com blog and follow us on Twitter at http://www.Twitter.com/WealthyIRA
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