RMD for illiquid IRA
I have a client with an large IRA that is invested in illiquid real estate loans and trust deeds. The fund is making small distributions that are insufficient to cover her annual RMD and is not allowing withdrawals. The fund is proposing an in-kind distribution of investment interest with matching 1099R to satisfy the RMD. She pays tax on the distribution even though she never actually receives any income, since the fund unable to make cash distributions. These in-kind (non-cash) distribution would then be placed in a newly established after-tax account.
Is this in fact the best/only way to handle this?
Thanks.
Permalink Submitted by Alan Spross on Thu, 2011-11-10 00:12
I don’t know the best way, but it sounds like this would be OK. The large self directed IRA custodians should be familiar with RMD requirements and work with the IRA to owner to make sure there is enough liquidity in the account to meet them. I trust that some form of cash or non cash asset is actually deposited into the after tax account.
Perhaps the custodian runs into this enough to know what will work best at this point or if there are any other alternatives. Another IRA related requirement is to have an appraisal or comparative method to determine an accurate year end value for the real estate, on which the RMD calculation is done. But the transfer of assets of any type from the IRA to a taxable account will satisfy the RMD. The client will have constructive receipt of the RMD when the assets reach the taxable account.
For next year, some planning needs to be done to make sure there is enough liquidity if there is any question about the investment interest being sufficient.