[0:21] Why is it up to you to submit the market value of the assets in your IRA with form 5498?
[1:00] If you have an asset with no firm market value, you must be able to figure out the value.
[1:35] How can you get an estimate for real estate?
[2:06] If you have an LLC, make sure you value all assets within the LLC.
[2:33] When do you need to send back your fair market value form?
[3:19] This year, IRS requires us to separate your marketable assets from non-marketable.
[3:46] Although form 5498 filing is done by March 31st, you have until April 15th to make a contribution for last year tax season.
[4:11] Do I need form 5498 to file income tax?
[4:36] You will receive your 1099-R before the end of January, and 5498 is sent back before the end of May.
[5:03] It’s imperative you take care of RMDs and your fair market value before the end of the year, especially if this is your second year to receive your RMD.
Fair Market Valuations
Market Value Reports – or sometimes referred to as Fair Market Valuations, are valuation worksheets that tell the IRS the market value of the assets held within your IRA. The IRS requires that IRA custodians give them an FMV for each account annually. This is important documentation because, as custodian, we cannot accurately, or fairly, value the wide range of assets held within each account.
Each January we send out an Asset Valuation Worksheet. The custodian has no efficient or possible way to evaluate each asset in each account, so it is up to the account holder to appropriate the value of the asset. IRA clients need to fill out this form and return it to us before March 31st. Any forms received after the deadline will not be processed. If we do not receive an Asset Valuation Form, then we report the same value as the previous year.
These Fair Market Valuations have been sent to all Sunwest Trust clients, and it is up to the account holder to complete and return this valuation to Sunwest by March 31st. Again, the custodian has no efficient or possible way to evaluate each asset in each account, so the responsibility is up to the account holder to acquire the value of each asset in a self directed account.
What Types of Assets Do You Hold in Your IRA?
The Value of Traditional Assets:
For people who hold assets such as promissory notes, life settlements, private placements, etc. the asset valuation worksheet may not be necessary. If your asset doesn’t change value until it pays off, we would just report the face value of the asset, plus any cash held in the cash account.
With an asset like gold, you can take the spot price and multiply that by some ounces your IRA holds and come up with a reasonable market price and report that number to the IRS. It is essential yet easy enough.
Market Value Price – or the price an asset would be worth in the marketplace. With that definition in mind, how do you know what a piece of real estate is worth in the market until it has been sold? Or stock in a private company? Or cattle? And which marketplace are we speaking of?
The Value of Non-Traditional Assets:
With non-traditional assets (LLC, real estate, or precious metals) it is still just as important to report the fair market value as it would be with traditional assets, maybe more. We rely on the account holder to provide this information. Now, we do not require a full-blown appraisal on most assets. The majority of the time, a simple valuation from an independent third-party is all we need. The valuation should consider reasonable expectations of the worth, along with the IRS’s inclusion of the word “fair” in the term Fair Market Value. It is best to have your independent third-party find reasonable market comparisons to the type of asset you are holding and generate a fair value from his or her findings.
For example, if you have real estate, you could have a Realtor do a market analysis or run comps to come up with the value. For precious metals, contact the broker where you bought them and have them provide you with something showing the value of the metals, as of December 31st.
One thing to keep in mind, if you have an LLC and have multiple assets within your LLC, you need to find fair market values for each asset and list them all on your market value report.
Does the Liabilities section apply to me?
You will also notice on the form that there is a section for “liabilities.” This will not apply to most of you, but some clients have non-recourse loans in their IRA. If you have a non-recourse loan, you will list it in this section.
Determining Fair Market Value Reports
To determine the FMV, simply add up all the values of the assets and subtract any liabilities (if you have any). Now, these blank reports were sent out to Sunwest Trust clients in January and are not due back to the custodian until March 31. The information included on these evaluations will be reported to the IRS in May of 2015 on form 5498.
Around tax time we often get calls from clients, asking for their 5498’s to complete their taxes for the year. However, we do not send those 5498’s out until May. The reason for this is the 5498 form reports the accounts contributions and valuations which are not due to the IRS until April 15th. Therefore, April 15th is the deadline for contributions, which gives the custodian two weeks to generate the 5498‘s and have them out by May.
In short, you do not need your 5498 to complete your April taxes, when traditional tax filings are due.
Quick Note About 1099-R
Another note, if you took a distribution from your account during the last tax year, you will also receive a 1099-R, which reports to the IRS that distribution was received from your account. However, you can still take distributions for last year’s tax season up until April 15.
If you have any questions, please let us know so we can get those answered and possibly use it as a topic for your Tuesday at 2:00. As always, if you would like a copy of Mat Sorensen’s Book, The Self Directed IRA Handbook, please let us know, and we’ll send one to you.
Welcome. I’m Terry White, CEO of Sunwest Trust, and this is Tuesday @ 2. Today, we’re going to talk about some more things, that you need to keep in mind as the end of the year approaches.
We’re going to talk about Market Value Reports. If you’re a Sunwest Trust client, we’ve sent you a Market Value Form, and it’s up to you, to tell us what the market value is, of the assets in your IRA account. Now, the reason we do this is that we don’t have a way of fairly valuing the many different assets that we hold for people, in their IRA accounts. People hold everything from, private companies, to gold, to real estate. All those kinds of things, and real estate all over the country, and we don’t know what the value of those are.
What we do, and we’ve done ever since we’ve been in business, is, we ask you to tell us, what the market value is of your account.
If you have an asset in your account, that doesn’t have a market value, if you have gold, for instance, you can go, get the spot price of gold, and just multiply that by the number of ounces you’ve got, and come up with the market value, of that.
However, if you own a piece of real estate in your IRA, or you’ve got a private company, you need to be able to tell us what the value of that is for IRS reporting purposes.
So, what you need to do, is, you need to find an independent third party, that will give you that valuation. And give you a number, based on some reasonable expectations, of what that’s worth. For instance, if you have real estate, we don’t ask you to get a full-blown appraisal ’cause that would be very expensive, but what you could do, is if you have a Realtor friend, who could run some comps, of homes, or apartments, or whatever it happens to be, in the area where yours is, and come up with a decent estimate, of what the value of that property is, that would be fine Because that Realtor is not related to you, and they’re using market information, to determine what the value is. That would be a great way to do it.
If you have an LLC, then you need to keep in mind, all the assets within the LLC, so if you own some real estate, you have some cash, you may have some gold, you may own some debt, that you’ve lent money to someone. All of those things, each one of those assets, you need to look at, and determine a value, get a value for those, write that on the Market Value Report Form, and send that back to us.
We send those out in December, and we need those back from you, by March 31st of the following year.
The information that’s given to us on those forms will go on a Form 5498, which will be submitted to the IRS in May.
So, another thing is, a lot of times we get calls from clients, early in the year, and they say, ‘Hey, I’m gonna file my taxes, I need my 5498, so I can file my taxes’. We don’t send out the 5498s until May; and the reason for that, is, that 5498 will report your contributions for the previous year: it will report the fair market value, of the assets you have in your IRA, and this year, it will segregate marketable assets from non-marketable. Your stocks, bonds, mutual funds, things that have a ready market, that you can determine the value easily, will separate those from the things like real estate, that are a little more difficult to value, or things that are, what we call, in a self-directed IRA, ‘non-traditional-type assets’. This the first year, that the IRS has required that we do that. But, you provide that value to us, by March 31st, and then, we have to give you until April 15th to make a contribution for last year.
We can’t send you or submit the 5498s to the IRS, until after April 15th. Therefore, the IRS gives us until the end of May, to send you the 5498. However, again you don’t need that to file your income tax. You can just keep track of the contributions you made and put those on your 1040 form. If you took a distribution from your account during last year’s tax year, you would get a 1099-R by the end of January. You’ll have that information readily available for you, or you can contact us, and we can give you that if you didn’t receive it. That will be mailed out, the 1099s, before the end of January. The 5498s, we will compile the market value information, we’ll also know if someone made a contribution. We will then file and send you the 5498 before the end of May.
So, that’s chronological, that’s the way the events happen here, as we approach the end of the year.
Last week, we talked about RMDs, don’t forget about that, if you’re over 70 and a half. Don’t forget about providing us with market value information next year, as of December 31st so that we can report that correctly, on your 5498.
If you have questions about other things involving the end of the year, please e-mail me; I’d be happy to use those questions as topics for Tuesday @ 2, and I will send you an answer, directly, or point you in the right direction to get that answer.
So, I hope you’ve enjoyed this, and I look forward to seeing you again next week.