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We Are on The Cusp of a New Year – Time to Start Preparing Your IRA Fair Market Valuations

Fair Market Value (FMV) of your IRA

It’s almost January again, which means it’s time to start thinking about the Fair Market Value (FMV) of your IRA assets.

It probably is a good idea to get your IRA FMV evaluations c0mpleted sooner than later.

It has long been a requirement to report the IRA Fair Market Value (FMV) on December 31st for ALL IRAs including self directed IRAs.

This IRS requirement is the responsibility of the IRA Custodian/Trustee. If they ask you, the IRA Owner, to obtain the December 31st FMV of your IRA assets, remember the FMV must be made by an independent third party.

You, the IRA Owner, is NOT allowed to just evaluate the IRA assets as you see fit. And, the original cost CANNOT be used!  It must be the actual fair market valuation. 

You will need to have each asset valued by a third party.

When your IRA Custodian/Trustee asks you to obtain the FMV, remember that it is a requirement and must be done correctly and timely.

Any costs associated with the obtaining of the IRA FMV must be paid through the IRA.

Keep in mind, fees cannot be paid personally, as this would be considered a prohibited transaction.

IRS Form 5498

You might recall, we described the changes to the IRS Form 5498, which is the required form for FMV reporting. These IRS forms include new, special reporting for self directed IRA assets that are not easily evaluated by some nationally recognized market. So, for IRA assets other than stocks, bonds, and mutual funds, etc. Special reporting will itemize them for the IRS.

Again, as mentioned previously, with the changes being made by the IRS. it can only be surmised the IRS will be scrutinizing the self directed IRA assets more diligently in the future. And, that future could be now!

Part of our job as your IRA Custodian is to provide the IRS each year with a 5498 form. The 5498 records any contributions made to the IRA account and the total value of the IRA. This will require you to give your IRA custodian the value of each of the assets in your self directed IRA.

The FMV is determined by taking the actual value of each asset, as of December 31st.

Tips For Calculating The Fair Market Value of Your IRA

In December, Sunwest Trust will send each client a Fair Market Valuation (FMV) Worksheet. On the worksheet, you will need to list all of the assets and liabilities you have in your IRA.

For real estate held in your IRA, you will not need to get a formal appraisal, but you will need to have a third party perform a market analysis or run comps on the property.

Some assets are much easier to value than others. For instance, a promissory note would simply be valued by the face value of the note. If you own precious metals in your IRA, we would just need to know the spot price, as of December 31st.

If you are investing in a private placement or a multiple member LLC, you will just need to provide us with your most recent statement from the company or a K1, in the case of an LLC.

Since each investment is different, we will decide proof of FMV based on a case-by-case basis. The most important thing is that we provide both you and the IRS with an accurate 5498.

We must have your Fair Market Value by March 31st at the absolute latest.

If you received a distribution from your IRA from the previous tax year, 1099s will go out in January.

You have until April 15th to make prior year contributions. Therefore, Form 5498s are sent out in May.

You do not need your 5498 to complete your income taxes.

Simply figure out the amount that you contributed to your IRA for this past tax year and talk to a CPA or tax professional to see how that should be reported.

If you have any questions about the Fair Market Values or how to determine the value of your assets, please contact your CPA or tax professional. Sunwest Trust cannot provide any tax or investment advice, but we can assist you with filling out the FMV form if you have questions.

We will mail you an Annual Asset Valuation Worksheet, but if you would like to fill it out and send it in early, you may click on the link: Annual Asset Valuation Worksheet.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.